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Lecture2 Business Finance
Lecture2 Business Finance
Introduction to
Financial
Management
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McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
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Function of Each Corporate Organization
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Function of Each Corporate Organization
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Function of Each Corporate Organization
• President (Chief Executive Officer)–
– Overseeing the operations of a company
and ensuring that the strategies as
approved by the board are implemented as
planned
– Perform: Planning, organizing, staffing,
directing and controlling
– Representing the company in professional,
social and civic activities
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Function of Each Corporate Organization
• VP for Marketing
– Formulating marketing strategies and plans
– Directing and coordinating company sales
– Performing market and competitor analysis
– Analyzing and evaluating the effectiveness
and cost of marketing methods applied
– Conducting or directing research that allow
company identify new marketing
opportunities
– Promoting good relationship with
customers and distributors
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Function of Each Corporate Organization
• VP for Production
– Ensuring production meets customer
demands.
– Identifying production technology/process
that minimize production cost and make
company cost competitive
– Identifying adequate and cheap raw
material suppliers
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Function of Each Corporate Organization
• VP for Production
– Ensuring production meets customer
demands.
– Identifying production technology/process
that minimize production cost and make
company cost competitive
– Identifying adequate and cheap raw
material suppliers
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Function of Each Corporate Organization
• VP for Administration
– Coordinating the function of administration,
finance and marketing departments
– Assisting other demands in hiring
employees
– Providing assistance in payroll preparation,
payment of vendors and collection of
receivables.
– Determine location and maximum amount
of space needed by the company.
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Jean-Marc Huet (Uniliver)
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Financing
• To determine the
appropriate capital
structure of the company
and to raise funds from
debts and equity.
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Function of Each Corporate Organization
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ASSETS = LIABILITIES + OWNERS EQUITY
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Investment
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Short Term Investment
1. Plan for expected excess in
cash using Financial Planning
tools such as budgeting and
forecasting
2. Choose which type of
investment should it invest in
that would secure the best
profit
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Long Term Investment
Capital budgeting is a tool to assess
whether the investment will be profitable
in the long run
Lenders should have the confidence that
the investment that management will
push through with will be profitable or
else they would not lend the company
any money
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Operating Decision
Role of VP Finance is to determine how
to finance working capital accounts such
as accounts receivable and inventories.
Company has choice:
Long Term Finance
Short Term Finance
In making Decision Making
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Why Manager need to choose which1-201-20
source of funds in decision making?
Short term sources – payable within at most
12 months.
Short term loans from bank – interest are
lowered in compared with long term loan
Suppliers Credit are the amount owned to
suppliers for inventories they delivered or
services they provided .
Free of interest charge, such obligation is to
paid on time to maintain good relationshiop
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Why Manager need to choose which1-211-21
source of funds in decision making?
Short term sources pose a trade-off
between profitability and liquidity risk.
Two types of liquidity risk
1.Risk that the company will fail to pay its
short term obligations
2.Risk that will not able to sell investment
in financial assets immediately
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Why Manager need to choose which1-221-22
source of funds in decision making?
Long term sources, - mature in longer
periods.
Lenders expect more risk and place a
higher interest. Source matures in a
longer period of time, it gives the
company more time to accumulate cash
to pay off the obligation in the future
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Why Manager need to choose which1-231-23
source of funds in decision making?
Long term sources, - mature in longer
periods.
Lenders expect more risk and place a
higher interest. Source matures in a
longer period of time, it gives the
company more time to accumulate cash
to pay off the obligation in the future
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Why Manager need to choose which1-241-24
source of funds in decision making?
Two conditions before a company to
declare cash dividends
1.The company must have enough
retained earnings ( accumulated profits)
to support cash dividend declaration
2.Company must have cash
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Why Manager need to choose which1-251-25
source of funds in decision making?
What they think will affect the decision of
management in paying dividends.
•Availability of financially viable long-term
investment
•Access to long term sources of funds
•Management’s Target Capital Structure
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