Chapter

Introduction
to Financial
management

By: Ghada Ismail

Session content
Areas

of finance.

Importance

of finance.

Main

decisions taken by financial

managers.

Forms

of business organizations.

Basic Areas Of
Finance
1.

Investment

2.

Financial institutions

3.

Corporate finance / Business

Finance

4.

International finance

FIN30
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1-Investment
Work

with financial assets such as stocks

and bonds.
Value financial assets, evaluate risk versus
return, and handle asset allocation
Job

opportunities

Stockbroker or financial advisor

Portfolio manager
Security analyst

2-Financial
Institutions
Companies

that provide financial

services
Banks

commercial and investment,

credit unions, savings and loans
Insurance companies
Job

opportunities

Commercial

loan officer.
Mortgage consultant.
Insurance specialist.

3- Business finance
Work

in the finance department of business

organizations.
The main area of our course.
Job

opportunities

Financial analyst.
Financial manager.
Controller.

Top paid CFOs

1. Peter Oppenheimer,
Apple ($68.6 m)

2. Safra Catz,
Pichette,
Oracle ($51.7 m)

3. Patrick
Google ($38.7 m)

4. Michael Angelakis,
Comcast ($23.2 m)

5. Keith Sherin,
GE ($20.2 m)

4-International
Finance
An

area of specialization within each of the

areas discussed so far
Need to be familiar with:

exchange rates and political risk.

customs of other countries.
foreign languages.

IN
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Why Study Finance?

You need finance knowledge for
each of the following business
areas:
Marketing
To

be able to sell financial products

To determine products prices.

Why Study Finance?

Accounting
To

prepare accounting reports

Management
To

evaluate job performance and

profitability
To understand executives contracts.
Personal
To

finance

Budgeting, retirement planning,

student loan management.

Corporate Organization Chart

Financial Manager
The

top financial manager within a

firm is usually the Chief Financial
Officer (CFO)
Treasurer

oversees cash management,

credit management, capital expenditures,
and financial planning
Controller oversees taxes, cost
accounting, financial accounting, and
data processing

Financial Management
decisions
What exactly do financial managers/CFOs
do in business organizations:
What long-term investments should the firm
take on?
Where will we get the long-term financing to
pay for the investments?
How will we manage the everyday financial
activities of the firm?

Financial Management
decisions
Capital

budgeting

What long-term investments or projects

should the business take on?

Capital

structure

How should we pay for our assets?

Should we use debt or equity?

Working

capital management

How do we manage the day-to-day finances

of the firm?

Forms of Business Organization

Three main forms of Organizations:

Sole

proprietorship

Partnership
General
Limited

Corporation

1-Sole Proprietorship
Business owned by one person
Advantages
The

easiest to start
Least regulated
Single owner keeps all
of the profits
Income is taxed once
as personal income

Disadvantages
Limited

to life of owner
Equity capital limited
to owners personal
wealth
Unlimited liability
Difficult to sell
ownership interest

2- Partnership

Business owned by two or more persons

Advantages
Two

or more owners
More capital available
Relatively easy to start
Income taxed once as
personal income

Disadvantages
Unlimited

liability

General partnership
Limited partnership

Difficult

to transfer
ownership

3- Corporation
A legal person distinct from owners and a
resident of a state
Advantages
Limited liability
Unlimited life
Separation of
ownership and
management
(attracting better
skills)
Transfer of ownership
is easy
Easier to raise capital

Disadvantages

Separation of ownership
and management
(agency problem)
Double taxation (income
taxed at the corporate
rate and then dividends
taxed at personal rate,
while dividends paid are
not tax deductible)