Global Financial Crisis [(2008) US and Accurate measuring of the high current dividend
Europe] key ingredient – profit- payments
stability of the ff.started to wane and weaken Goals of Fin Man –categorized as follows: Social Responsibility and Ethical investment banks Maximization of the value of Behavior insurance companies the firm ( Valuation It is an issue that needs to be mortgage banks Approach) consider Maximization of Question: Can a firm be socially CAUSES/ REASONS Shareholder Wealth responsible while focusing on misapplication of risk controls Social responsibility and maximizing the shareholder’s for bad debts Ethical Behavior wealth or maximizing the overall collateralization of debt value of the firm? insurance and fraud VALUATION APPROACH Answer: The cost is offset by the deceleration of economic The definite gauge of performance is not increase of income generated by activities yielded but more of “ how the yield is increase in sales revenue credit crunch VAUED” by the owners of the company because customers tend to buy main goal- maximize not profit more from companies who are EFFECTS alone, but the overall value of socially-responsible European bank failures the firm Declines in various stock indices Therefore in considering Functions of Financial management Massive declines in the market investment proposals or in the MARKET VALUE of equities decisions Involves the prudent allotment and commodities. Consider profit and among other and spreading of company funds Liquidity problems things to current and non-current Decreased in the international These are as follows: assets trade. Risk attached to the An effective and efficient Oct 2008, currency crisis investment proposal or financial management entails a the company’s well balance financing activities Implication of Crisis operation; and formulating suitable Made the contribution and role of Time design as to when dividend policy that fit in with FM as directing firms operation, and how the profits will the firm’s business objectives economics operation increasingly flow into the company, Some of the functions are significant. which refers to when carried out on a daily basis like Economic outcomes tends to twist will there be an upsurge o cash management, and twirl making them more or decline of profit o inventory management, unpredictable The quality and o credit management and interest rates and currency reliability of the profits o fund receipt and exchange rate unceasingly reported by the firm. o disbursement management fluctuate Conclusion : a wise FM should take into inflation and deflation occur consideration the impact of all these to Other activities not done on a awful shortage and overage the company’s overall valuation. If a daily basis but rather irregular happens decision brings about a status quo or include company stock and bond arguments the firm’s overall value then issuance, capital budgeting, and Financial managers MUST the decision is acceptable creating dividend policies maintain and sustain the economic capability of an Take Note enterprise be equipped with the necessary MAXIMIZATION OF While daily and regular activities tools essential in finding ways and SHAREHOLDERS’WEALTH are managed, the financial means to cushion or hedge the The main focus is not so manager must be able to effects of significantly negative much with the day-to-day balance making income and outcomes of risk and among movements of the stock considering the inherent risks on other things relating to market price, but more so the decisions made. borrowings on the amplification of the o The balance act Foreign exchange long-term wealth of the between income and Equity & debt transactions shareholders risk us referred to as Inflations “RISK-RETURN TRADE Expectations and Requirements made by OFF”. ( The financial Goals of FinMan shareholders vary: manager must strike a Synonymous to the goals of the 1950s-1960s balance between the enterprise o The main focus was on highest possible income “Yield highest possible profit” increasing earnings with the most 1970s-1980s reasonable amount of Drawbacks 3 Matrix o The main concern risk) Change in profit may also became more o These activities plus the mean changes in risk conservative by balance of risk-return It does not fully take into focusing not so much trade-off are done to account the timing when on income growth bu achieve the profit/ gain would be on lowering risks and fundamental goal of received financial management, which is TO MAXIMIZE properties not covered by the would regulate vulnerable THE SHAREHOLDER’S investments made by the managerial actions) WEALTH owners nor the asset of the Common control measures company (General or Unlimited employed by management FINANCIAL MANAGER’S RESPONSIBILITIES Liability Partnership) gearing toward stockholders CORPORATIONS benefits. The higher the agency Forecasting and Planning This legal business entity created costs. Making Crucial Investment and by the operations of the law Financing Decisions Considered separate and distinct CONTROL MECHANISMS Coordinating and Controlling from its owners and executives There are a number of ways to Trade in Financial Markets The contract is called THE encourage managers to perform Risk Management ARTICLES OF INCORPORATION for the interest of the o The Articles of shareholder ALTERNATIVE FORMS OF BUSINESS Incorporation presents o Provide Performance- ORGANIZATION the rights and Based Incentive Plans limitations of the entity Sole Proprietorship Advantages o Straight Involvement By Considered as the oldest, most Unlimited Life Shareholders common, and simplest form of Changes in ownership or death (Institutional) business organization. of owners do not dissolve the This entity has only one power corporation o Takeovers and its customary feature is that Ease of transferability of owner is inseparable from the ownership (how in the form of INCOME STATEMENT business buying and selling stocks) Benefits you get: Limited liability (Owners are CHARACTERISTICS- begins with Simple in Decision Making separate and distinct from the an aggregate amount of sale Advantage corporation they are not (revenue) that are generated at It is easy and inexpensive to obligated to pay financial a specific period of time. form and subject to few obligations not covered by government regulations company assets using their The separation of expenses that Owners has complete control personal properties categorizes such as Mngt- able to
over the business, its operation, COGS access the relative
importance and and financially and legally HYBRID FORMS OF ORGANIZATION Selling and Admin. Exp. appropriation of responsible for all the debts and This is what we call LLP (Limited Liability Depreciation the expenditure in producing such legal actions against the Partnership) Int. and Taxes levels of sales business. The partnership is composed of Disadvantage at least one general partner and The various expenses that occur The proprietor has unlimited the rest are limited partners ( in generating the sales are personal liability for the payable limited partners do not have subtracted in stair. Step fashion or financial obligations not control in the company to arrive at the net income for covered by the assets of the operations, they are only liable the defined period business for the amount of their “bottom line” The life of the company is investments) Value of the net income limited to the life of its It is called hybrid because the They will know the proprietor organization is a partnership but aggregate amount variable it has the benefits of a to owners. PARTNERSHIP corporation. (The owners are not Net income is converted from Exists when two or more persons obliged to pay company debts aggregate value to Earning per combine their resources to with their personal properties) share conduct business, earn profit, and distribute among AGENCY RELATIONSHIPS - EPS= net income/outstanding themselves the results of their Whenever a person or a group of share(stocks) operations. The contract persons (principal) employs EPS measure of the return evidencing its existence is called another person or group of available to providers of the ARTICLES OF PARTNERSHIP persons (Agency) to render equity capital to the firm Advantage services and is the same time o Return to the providers of Its low cost and ease of delegate decision making debt capital formation authority to the agent, an o Interest Disadvantage agency relationship exists. Appears in the income Similar to sole proprietorship, statement as tax deductible unlimited liability, limited life, AGENCY CONFLICTS expense difficulty of transferring There could be conflict of ownership since this will lead to interest if the manager is also a How to convert EPS dissolution of the partnership partial owner of the same firm Is converted to a and difficulty of amassing a large measure of currency amount of capital AGENCY COSTS value by Partners are liable to pay Entails costs (audit cost, which = Price/ Earnings obligations beyond their geared toward monitoring ratio contributions like company managerial actions and Income statement – reflects debts with their personal restructuring the company that only income occurring to the individual or business firm from LIMITATIONS OF BS: INCOME TAX CONSIDERATION ( federal verifiable transactions as Value are reported at cost use) opposed to the economist Replacement cost of some assets Most financial decision are definition of income particularly PPE may greatly influenced by federal income Attached with evidence exceed the recorded value. tax considerations” o PERSONAL TAXES @ Balance sheet varying rates apply to Income statement provides Sources of Firm Financing the earnings and a summary of financial -in order of MATURITY properties of partners transactions for a period of o Corporate earnings are time AP subject at BS portrays the cumulative NP 2 LEVELS results and transactions at a Accrued Exp. – an obligation to point of time. pay is incurred but payment has Currently the tax ratio applicable to 2 broad categories not been made corporate earnings are: o ASSET Long term debt- all or majority 15% on 1st $ 25K -Employed in the operation of of the principal will be paid 18% on 2nd $ 25K the firm beyond the current period 30% on 3rd $ 25K o LIABILITIES AND NET Preferred Stock 40% on 4th $ 25K WORTH Common Stock 46% on taxable income owner $100K -Composed of sources of financing or the employed assets ~COMMON STOCK ACCOUNT After tax cost of a tax deductible o Common Stock PAR VALUE expenses is equal to the Enlistment of asset acc.to o Capital Paid in excess of PAR (expenses) X ( 1- Tax Rate) LIQUIDITY: o Retained Earnings o Cash Although depreciation is non- o Marketable sec. Sources and Uses of FUNDS STATEMENT cash expense it does not affect o AR Grouped as follows: cash flow by reducing taxes o Inventory a. SOURCES The reduction in cash flow for o Prepaid Exp.-future expense increase in stock holders equity taxes remitting from that have already been paid- increase in liability depreciation maybe be o Investments- inv& Sec.& decrease in asset computed by : other assets for longer than 1 b. USES operating cycle. Decrease EQ Dep’n expense X tax rate o PPE- adjusted for Accum. Decrease Liability Increase Asset Dep’n. @Sources and uses of fund may be constructed by applying the guide lines Confusing BS related items about comparing BS at different points in Retained Earnings time Cumulative total of the Adjustment earnings of the firm Reconciliation & change in , since its beginning until o RE is necessary when the date of the BS that has dividends are paid not yet been paid to the o Net Plant and owners. Equipment is necessary Earnings that are retained when Depreciable are used to assets are sold during o Purchase assets the period concerned o Pay liabilities o Throw a big party for Changes in every account are the manager include in the cash approach Book Value of the Firm" book value" historical value and does in the net working capital ( not necessisarily coincide with current assets less current Liab.) the market value of the owners approach, only non-current equity changes are shown separately. Composed of the various Therefore changing in net common of equity accounts working capital are net out and represents the net contributions of the owners DEPRECIATION does not generate to the business funds but is considered to be a Historical Value & does not source of fund because an amount necessarily consider with for depreciation although no cash the market value of the flow takes place , is deducted in owner’s equity deriving net income
Corporate Social Responsibility (CSR) As A Model of "Extended" Corporate Governance. An Explanation Based On The Economic Theories of Social Contract, Reputation and Reciprocal Conformism