Professional Documents
Culture Documents
Ph.D.
Bachelor of Engineering (Industrial Engineering),
Kasetsart University
Master of Business Administration,
Chulalongkorn University
Advanced Economic Program (Except Dissertation),
City University of New York, USA.
Doctor of Philosophy in Business Administration
(Financial Management),
North Central University, USA.
Certificate (Portfolio Management),
New York University, USA.
Certificate (Value Investing),
Columbia University, USA.
Certificate (Trading System),
New York Stock Exchange,
USA.
Leadership Training,
Chainarin Srinutchasart, Ph.D. Harvard University, USA.
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Office Hours
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Chapter 1 - An
Introduction to
Financial Management
What is Finance?
You go to
an
investme
nt bank to
help you You got profits and You can ask
issue the want to expand money from
common your business your friends
stock around the country (they might help
(financial
mkt- but you need a lot you take care of
primary of money your business)
mkt)
No bank
loans
7
Financial Markets
Primary Market
Secondary Market
New York Stock Exchange
Four Area of Finance
(you need to know all of
them)
Money and Capital Market
Investments
Risk Management
(Risk is the variability of expected returns -sales, earnings,
or cash flow-and is the probability that a financial
problem will affect the company’s operational
performance or financial position)
Financial Management (where we
are)
Financial management
Current Liabilities
Current Assets
Long-Term Debt
Fixed Assets
1 Tangible
Shareholders’
2 Intangible Equity
Corporate Finance addresses the
following
3 questions:
1. What long-term investments
should the firm engage in?
2. How can the firm raise money
for the required investments?
(Alternatives: Bonds, Stocks,
Preferred Stocks=what is the
appropriate price?)
3. How much short-term cash flow
does a company need to pay its 16
The Balance-Sheet Model of the
Firm
The Capital Budgeting Decision (Ch. 9-11)
(Investment Decision)
Current Liabilities
Current Assets
Long-Term Debt
Current Assets
Long-Term Debt
Timing of returns
Profit NOW or LATER??
2) Partnership
Similar to a sole proprietorship, except that
there are two or more owners.
Legal Forms of
Business
2a) General Partnership
All partners have unlimited liability.
elect
Board of
Directors
appoint
Finance
Marketing Productio VP Controller
VP n VP (CFO)
Treasurer
Responsibilities of Controller and
Treasurer
Controller Treasurer
Accounting Obtain financing
Reporting financial info
Maintaining banking relationships
Custody of records
Investing funds
Interpreting financial data
Investor relations
Budgeting
Managing cash
Controlling operations
Insuring assets
Appraising results and making
recommendations
Fostering relationships with creditors
and investors
Preparing taxes
Appraising credit and collecting funds
Managing assets
Deciding on the financing mix
Internal auditing
Disbursing dividends
Protecting assets
Managing pension funds
Reporting to government bodies
Payroll
The Corporation and
Financial Markets
The Corporation and
Financial Markets
Corporation
The Corporation and
Financial Markets
Corporation Investors
The Corporation and
Financial Markets
Corporation Investors
Government
The Corporation and
Financial Markets
Government
The Corporation and
Financial Markets
Government
The Corporation and
Financial Markets
Secondary
markets
Government
The Corporation and
Financial Markets
Secondary
markets
Government
The Corporation and
Financial Markets
Secondary
markets
Government
The Corporation and
Financial Markets
Secondary
markets
Cash flow
Government
The Corporation and
Financial Markets
Secondary
markets
Cash flow
tax
Government
The Corporation and
Financial Markets
tax
Government
The Corporation and
Financial Markets
tax
Government
Structure of Financial
Market
F i n a n c i a l M a r k e t s
M o n e y M a r k e t C a p i t a l M a r k e t
P r i m a r y SM e a c r ok ne td a r Py r Mi m a a r kr y e StM e a c r ok ne dt a r y
Financial Markets
Primary Market
Secondary Market
The Corporation and
Financial Markets
Initial Public Offering
(IPO)
The Corporation and
Financial Markets
Initial Public Offering
(IPO)
The first time the firm’s
stock is sold to the
general public.
The Corporation and
Financial Markets
Initial Public Offering
(IPO)
The first time the firm’s
stock is sold to the
general public.
Seasoned New Issue
The Corporation and
Financial Markets
Initial Public Offering (IPO)
The first time the firm’s stock is
sold to the general public.
Seasoned New Issue
A new stock offering by a firm that
already has stock that is traded in
the secondary market.
11 Principles of Finance
1. Higher Returns Require Taking More Risk
2. Efficient Capital Markets Are Tough to Beat
3. Supply and Demand Drive Stock Prices in the Short Run
4. Transaction Costs, Taxes, and Inflation Are Your Enemies
5. Time and the Value of Money Are Closely Related
6. Asset Allocation Is a Very Important Decision
7. Incremental Cash Flows- It’s only what changes that
counts
8. Cash-not profits-is the king
9. The curse of competitive markets
10. The agency problem
11. Ethical dilemmas are everywhere in finance.
Principle 1: Higher Returns
Require Taking More Risk
The Risk-Return Trade-Off= You don’t want to take on
additional risk unless you expect to be compensated with
additional return.
People invest some money now in order to consume in
the future (earn some interest)
A rational investor favors a higher return on a his
investment over a lower return, and prefers to take less
risk rather than more risk. Unfortunately, there is no free
lunch in the world of finance. A trade-off exists between
higher expected return on an investment and greater
risk. Safe investments (i.e., Treasury securities) have low
returns. High returns require investors to take big risks.
Risk reflects the uncertainty associated with the
expected returns of an asset. Risk is the part of an
asset’s price movement that is caused by a surprise or
an unexpected event measured by standard deviation
of the return on the asset.
Principle 1 (cont.)
Unsystematic risk is the risk caused by a surprise
event that affects only one company, such as an
accounting irregularity, new drug or new technology
discovery (e.g., Blu-ray), or a patent expiration.
Unsystematic risk is unique to a stock or industry
and can be reduced by proper diversification.
Systematic risk is the risk caused by a surprise event
that affects the entire economy and all assets to
some degree, such as an increase in interest rates, a
terrorist attack, or the political risk. The level of
systematic risk for an asset is not reduced by
diversification.
Expected Return
ks k
oc ris
St h-
ig
H
Corporate
Bonds
Govt
Bond St
s
ris ock
Lo k
w
T- -
Bills
Risk
FV = PV x 1
PVt =0 = Ct =i ×
(1+r)^n (1 + rt =i )i
Time Value of Money
84
Principle 9:Curse of Competitive Market-
Why it’s hard to find exceptionally
profitable projects.
New competitor – always
*In competitive markets, extremely large
profits simply cannot exist for very long.
85
Principle 10:The Agency
Problem
Manager is the agent for owners
They have conflict of Interest
Work for his/her benefit
Bigger conflict, bigger agency
problem
Hurt the firm value
88
A potential agency problem arises
whenever a manager of a firm owns less
than 100 percent of the firm’s common
stock
Since the firm’s earnings do not go
solely to the manager, he or she may
not concentrate exclusively on
maximizing shareholder wealth.