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Lecture Business finance - Chapter 1: Introduction

This chapter include objectives: Identify the major types of business entity, explain the role of the financial manager, specify the objective that is necessary to ensure the financial manager makes rational investment and financing decisions, identify the major financial decisions made by the managers of business entities, identify and explain the basic concepts of finance. | Chapter 1 Introduction 2 2 2 2 2 2 2 2 2 2 2 Learning Objectives Identify the major types of business entity. Explain the role of the financial manager. Specify the objective that is necessary to ensure the financial manager makes rational investment and financing decisions. Identify the major financial decisions made by the managers of business entities. Identify and explain the basic concepts of finance. 3 3 3 3 3 3 3 3 3 3 3 The Nature of Business Finance Broad aspects of finance Corporate finance: the financial management of companies. Financial institutions and markets. Investments. Focus is mainly on corporate finance, but also considers financial institutions and markets, and investments. 4 4 4 5 5 5 5 5 5 5 5 Financial Decisions Major financial decisions are: Investment decisions — decisions that determine the asset profile of a business (amount and composition of investments). Financing decisions — how the assets are to be funded (debt and equity). Financing decisions . | Chapter 1 Introduction 2 2 2 2 2 2 2 2 2 2 2 Learning Objectives Identify the major types of business entity. Explain the role of the financial manager. Specify the objective that is necessary to ensure the financial manager makes rational investment and financing decisions. Identify the major financial decisions made by the managers of business entities. Identify and explain the basic concepts of finance. 3 3 3 3 3 3 3 3 3 3 3 The Nature of Business Finance Broad aspects of finance Corporate finance: the financial management of companies. Financial institutions and markets. Investments. Focus is mainly on corporate finance, but also considers financial institutions and markets, and investments. 4 4 4 5 5 5 5 5 5 5 5 Financial Decisions Major financial decisions are: Investment decisions — decisions that determine the asset profile of a business (amount and composition of investments). Financing decisions — how the assets are to be funded (debt and equity). Financing decisions also involve dividend decisions. Ultimate objective of investment and financing decisions is to maximise the owners’ wealth. 5 5 5 6 6 6 6 6 6 6 6 Business Structures Sole proprietorship Business owned by one person. Partnership Business owned by two or more people acting as partners. Company Separate legal entity formed under the Corporations Act 2001. Focus is on financial decision making by managers of public companies. 6 6 6 7 7 7 7 7 7 7 7 The Finance Function: Major Roles of Financial Managers Project evaluation. Dividend and share repurchase decisions. Dividend distributions. Collection and custody of cash and payment of bills. Management of investments in current assets. 7 7 7 8 8 8 8 8 8 8 8 The Finance Function: Major Roles of Financial Managers (cont.) Assessing the viability of growth through acquisitions. Planning the future development of the business. Interest rate and exchange rate risk management. Development and implementation of financial policies. 8 8 8 9 9 9 9 9