Corporate Financial Manangement
CHAPTER 1: INTRODUCTION TO CORPORATE FINANCE
Contents 1. Scope of financial management 5. Company stakeholders 2. Forms of business organization 6. Management‐Shareholders’ Relationship 3. The objectives of the firm 7. The Audit 4. Regulatory frameworks for companies 8. Public Sector Organisation Learning Outcomes When you have read and understand this chapter, you should be able to: Explain the key decisions in corporate financial management and their interrelationships Explain the different forms of business organization Differentiate between a Limited Liability Company and Public Limited Liability Company Explain the primary objective of a company and why management act to further the objective Identify the various stakeholders in a company and explain the nature of their interest Understand the principles of agency theory Explain the purpose of audit
1. INTRODUCTION Corporate financial management is the management of the financial resources of an organization in such a way as to create and maintain value in the organization. Value is created through the exercise of good judgement in taking the key three decisions involved in financial management. These are: Investment decision Financing decision Dividend decision
Investment Decision Investment decision involves issues relating to the nature of the projects a firm is to undertake. It involves the allocation of capital resources to long term assets that would yield benefits in the future. Two important aspects of the investment decision are (a) the evaluation of the prospective profitability of new investments and (b)the measurement of the cut‐off rate against that the prospective return of new investments could be compared1. Financing decision
Contents 1. Scope of financial management 5. Company stakeholders 2. Forms of business organization 6. Management‐Shareholders’ Relationship 3. The objectives of the firm 7. The Audit 4. Regulatory frameworks for companies 8. Public Sector Organisation Learning Outcomes When you have read and understand this chapter, you should be able to: Explain the key decisions in corporate financial management and their interrelationships Explain the different forms of business organization Differentiate between a Limited Liability Company and Public Limited Liability Company Explain the primary objective of a company and why management act to further the objective Identify the various stakeholders in a company and explain the nature of their interest Understand the principles of agency theory Explain the purpose of audit
1. INTRODUCTION Corporate financial management is the management of the financial resources of an organization in such a way as to create and maintain value in the organization. Value is created through the exercise of good judgement in taking the key three decisions involved in financial management. These are: Investment decision Financing decision Dividend decision
Investment Decision Investment decision involves issues relating to the nature of the projects a firm is to undertake. It involves the allocation of capital resources to long term assets that would yield benefits in the future. Two important aspects of the investment decision are (a) the evaluation of the prospective profitability of new investments and (b)the measurement of the cut‐off rate against that the prospective return of new investments could be compared1. Financing decision