Dit document bevat een samenvatting van de theorie van het vak Financial management. Het is een samenvatting van de powerpoints en zelf genomen notities uit de les.
FINANCIAL MANAGEMENT
INTRODUCTION
Examen
- Op de computer
o Je mag excel gebruiken
- MCQ & open questions
- Voorbeeld examen in mei
o Een oud examen bekijken en daar lijkt echt examen ook op
- We krijgen formularium (sommige dingen ook gwn via excel kunnen doen eig)
o Gaat hij nog op BB posten
C1: OBJECTIVES AND FUNCTIONS OF FINANCIAL MANAGEMENT
Financial manager
- Involved in number of decisions
o Balance sheet of company: assets & financing (liabilities)
▪ A: in which firm will invest
▪ L: used to fund the investments
- Manager: contribute in which assets they will invest
o Number of techniques to asses the value that can be created with
number of investments
▪ Involved in investment decisions => help firm decide
- After determined the investment => HOW fund?
o Second role of financial manager => different types of finance
▪ Debt & equity (many different types)
• Public, long term, non-bank debt…
• combination of debt & equity => convertible debt
▪ moeilijk om te kiezen tss alle opties
- 3de: all these decisions will lead to number of cash flows => how to optimize
these flows
o Tradeoffs: all time enough cash to fund all the things you need to pay
▪ Pay wages, investments
o BUT: not a lot of cash => not productive, nothing happened with the
money
▪ Excess cash doesn’t bring profits
o Make plan for cash in & out flow + balance them
,What is the objective of financial management
What do we want to get to? / the goal of the financial manager?
- Maximaze what?
o Revenues: maar daar zijn ook kosten bij dus niet goed idee
o Profits: maar welke profits dan?
o Absolute waarde, of profit per share?: maar ook rekening houden mt
het risico
o Value per share: expected profit + expected risk
▪ Best
- Example
o Interest rate bond is 10% (bcs 20% => 10%)
- 100 equity met 10 shares en profit 20% dus 2 per share
- We issue a bond dus meer equity
o Profitability: goes down bcs the extra money is invested in bonds who
only yield 10%
o Dus absolute profi stijgt van 20 naar 30, maar is een slechte investering
omdat de profitability daalt (en profit per share daalt)
o When looking at profit, relate it to the amount per share
,Which objective?
Value
- Meer dan enkel profit
o Vaak denkt men: decision leads to increase of earnings per share dat is
dan goed, maar dat is niet altijd het geval
o The fact that earnings per share go up, is niet altijd good for the
shareholders
▪ Want die willen de VALUE per share
• = expected profits in the future (niet enkel de profits
today)
- Earnings per share is dus gevaarlijke maatstaaf
o Je wilt expected future profit weten + RISK vd profits
o Value of firm & shares is determined by expected future profits & risk
dat bij profits hoogt
▪ Meer risk = lower value
▪ Higher expected profit = increase value
▪ RELATION: zie later
- Efficient market: market price of share reflects value
o Any financial instrument will reflect its true value WHEN efficient market
▪ But are markets really efficient (zie volgende week)
- Is value maximization the objective of companies?
o Moeten we ook niet rekening houden met andere aspecten
▪ Zoals de broad societal impacts of the firm
• Bv: pharma company: maximize price or make available
for everyone?
, Voorbeeld
- We don’t care about helping the sick, we want shareholder profit
o Value perspective = correct
o BUT doesn’t feel right that they say that (social)
ESG
Veel aandacht hiernaar (veel onderzoek)
- Idea: companies should not simple focus on maximizing there value, they
should also consider the effect of the company on environment, social issues,
governance…
- Companies should care about other things
o Investors care about the broader impact of the firm and not just the
profits
▪ Need to know the impact, not pure financial goal!
- This statement raises a lot of questions
o Do firm do this in reality?
o Do investors really care about that?
▪ Does it increase the value of the firm if they pay attention to ESG
- Hard to measure => hard to know the answers to the questions
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