There are 10 principals that form the foundation of financial management?

Choose
any 3 principals whom you think are the most important and discuss their
importance and weakness of each in details. (You are free to choose any examples
or cases study to support your view)
First principal
The Risk-Return Trade-of
The trade off which an investor faces between risk and return while considering
investment decisions is called the risk return trade off.
Higher risk is associated with greater probability of higher return and lower risk with
a greater probability of smaller return. This trade off which an investor faces
between risk and return while considering investment decisions is called the risk
return trade off.

The Risk Return Trade off wont take on additional risk unless they expect to be
compensated with additional return. Investment alternatives have different amounts
of risk and expected returns.The more risk an investment has, the higher its
expected return will be.
Example:
For example, Rohan faces a risk return trade off while making his decision to invest.
If he deposits all his money in a saving bank account, he will earn a low return i.e.
the interest rate paid by the bank, but all his money will be insured up to an amount
of RM 1 million (currently the Deposit Insurance and Credit Guarantee Corporation
in Malaysia provides insurance up to RM 1 million).
However, if he invests in equities, he faces the risk of losing a major part of his
capital along with a chance to get a much higher return than compared to a saving
deposit in a bank.
https://www.google.com/url?
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Second Principal
Cash - not Profits - Is King?

That means Cash or money should be first or prioritized. For example, there is a
company R. People anticipated that the interest of stock for the company would be
50%. But actually, people got only 10% after a year. So, what's the point? If at all
they invested money into any of the governments bond, they would have got a
better interest rate.
Hence, investor won't take on an additional risk unless they expect to be
compensated with additional returns in any form. Only additional cash can be a
King.
http://www.scribd.com/doc/58554257/Ten-Principle-Forms-of-FinancialManagement#scribd
Example:
Local investors are maintaining a tight grip on their cash as they keep a cautious
eye on Malaysian stock picks, amid a stuttering economy that is weighed down by
the global oil crash and the persistent poor performance of the ringgit.
Public confidence in Malaysias economy has buckled under the weight of
inflationary pressure caused by rising domestic fuel prices and the April 1
introduction of the Goods and Services Tax (GST), a situation that is not helped by
the string of controversies involving state-owned firm 1Malaysia Development
Berhad (1MDB).
I try to hold on to more cash and I dont really invest in the market now. As long as
the 1MDB issue does not have a clear outcome, I guess investors wont have
confidence in the local market, said John Ang, a remisier with a local bank.
The ringgit has been rated Asias worst performing currency this year so far, having
slipped below the Asian Financial Crisis peg to 3.8050 against the greenback on July
6 amid multiple ongoing probes into the debt-laden 1MDB.
Reports have claimed that the investigations on the state investment company have
worsened the ringgits oil-led decline, with jitters over Greeces earlier plan to exit
from the Eurozone and a recent rout in the Chinese stock market adding to riskaverse sentiments.
Even after regional sentiments improved following Greeces conclusion of its
conditional bailout deal, concerns remain that more external pressure may come
from a strengthening US dollar with the US Federal Reserves plan to raise interest
rates, expected some time later this year.
Lee, an avid investor now in his 40s, said he has opted for a wait and see
approach and may even consider taking a rest from the market.

He echoed Angs view that cash is king for now, though he noted that some
investors consider the current slack in the market as a healthy correction and an
opportunity to buy up their favourite stocks at lower prices.
And when the market is back to bull state they will take some profit. However, from
a trader point of view, they will cut their losses and wait for the market to rebound,
he said.
One investor who sees opportunity in the slow market is Kumaran Padmanabhan,
who has been buying up stocks on the local market in anticipation of higher returns
once the market rebounds.
Kumaran, a manager at a telecommunications company in his 40s, observed that
foreign investors have been pulling out likely due to the perceived political
instability in Malaysia and the current global crude oil price slump, but expects
things to pick up next year if crude oil prices average at above US$50 (RM190.18)
per barrel.
If you want to make money, now is the best time, a month ago it was 1,600 points,
now its at 1,700 points, 100 point increase, he said, referring to the Kuala Lumpur
Composite Index (KLCI).
I dont know if it is a technical rebound or genuine rebound, but based on technical
analysis, there is increased interest in people to invest, so thats a good sign, he
said.
Another investor, Pan who is in his 50s, thinks that even if global crude oil prices
remain low there is still profit to be made, especially from stocks of export-oriented
local companies.
He admitted that the market uncertainty at the start of the plunge in global crude
oil prices in the third quarter of last year prompted him to exit the market, but he
has since resumed trading after it started stabilising at around US$40 (RM152.40)
per barrel sometime in January this year.
When oil prices go down, the industries that use petrol will have it cheaper and if
they export, the weak ringgit will give more because of the foreign exchange,
companies such as the export-based ones, so Ive been moving to those
companies, he said.
Despite the weak market sentiment, several local funds and shares still managed to
perform well over the first half of this year, according to Annie Hor, a financial
planner at Harveston Wealth Management.
But those with the means have been asking to invest in non-ringgit assets amid
weakness in the Malaysian currency, looking into areas such as overseas equity,
fixed income or properties, she added.

Hor said diversifying investments between local and foreign options would help
investors maximise their returns over the long term, especially if the ringgit faces
an extended decline.
But it does not mean go all foreign, she said.
The Employees Provident Fund (EPF), meanwhile, believes the current market
slowdown should not eat into contributors overall returns due to its diverse
portfolio to mitigate risks.
Nurhisham Hussein, who heads the private retirement funds economics and capital
markets department, added that the lower stock prices means the fund can buy
undervalued stocks boost returns.
As a retirement fund, the EPF can afford to take a longer term view on these
investments as there is also nothing fundamentally wrong with the Malaysian
economy or markets
- See more at: http://www.themalaymailonline.com/malaysia/article/cash-is-king-as-malaysianinvestors-switch-gameplans-to-deal-with-bearish-m#sthash.rXLnZGA0.dpuf

Third Principle

The Curse of Competitive Markets

In reality, it is much easier to evaluate profitable projects than find them. If an
industry is generating large profits, new entrants are usually attracted. The
additional competition is likely to drive profits down to the rate of return investors
require. Conversely, if an industry is returning profits below the required rate of
return, then some participants in the market drop out, reducing supply and
competition. In return, prices are driven back up. The competition lessened and
firms moved out of the video rental industry, profits again rose to the point at which
the required rate of return could be earned on invested capital. . The two most
common ways of making markets less competitive are to differentiate the product in
some key way and to achieve a cost advantage over ones competitors.
Regardless of how the cost advantage is createdby economies of scale,
proprietary technology, or monopolistic control of raw materialsit deters new
market entrants willowing production at below industry cost. This cost advantage
has the potential of creating large profits. The key to locating profitable investment
projects is to first understand how and where they exist in competitive markets.
Then the corporate philosophy must be aimed at creating or taking advantage of
some imperfection in these markets, through either product differentiation or
creation of a cost advantage, rather than looking to new markets or industries that

appear to provide large profits. Any perfectly competitive industry that looks too
good to be true wont be for long. It is necessary to understand this to know where
to look for good projects and to accurately measure the projects cash flows.

http://www.slideshare.net/nurdalilazamri/ten-principles-that-form-the-foundations-offinancial-management
http://economictimes.indiatimes.com/definition/risk-return-trade-off
http://www.themalaymailonline.com/malaysia/article/cash-is-king-as-malaysianinvestors-switch-gameplans-to-deal-with-bearish-m

http://www.economicsonline.co.uk/Competitive_markets/Competitive_markets.html