Management and Organizational Studies 1023A/B Lecture Notes - Life Insurance, Insider Trading, Third Market

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Feb 27 – Introduction to Finance
Under what terms is money allocated b/w lenders and borrowers?
Role of Management
Management serves as a sort of intermediary for the best interest of the
shareholder. Manager's role is to ensure conflicting interests are satisfied
Contractual claims – eg. Salary owed for working for two weeks. Under
contract that these claims will be satisfied
Function of Financial Manager
Finance function: investing funds in the right places and getting returns
back to investors. Look at longer-term decisions.
Day to day decisions: looks at current assets and liabilities – short term
investments critical to the company eg. Having the right amount of
inventory.
Financing a business: short term debt, liability. eg. Is it wiser to sell shares?
Manager must generate money by going to outside financial markets.
Investors: anyone that lends or gives a company money.
Maximizing Shareholder Wealth
Investors have expectations on return – either dividends or reselling at a
higher price
*Shareholder – shares. Stockholder – owns stocks. Both mean the same
thing.
*Stakeholder – anyone who invests in a company – creditor, employee,
government.
*Not all stakeholder are shareholders/stockholders
Profits must be considered in relation to the investment. eg. Company makes
$1000. 1000 shares outstanding. $1000/outstanding shares = $1. Profit is $1500,
but shares are doubled. $1500/2000 = $0.75. Must consider the amount of shares
to the amount of profit – often better to issue debt.
Also must consider timing
Consider risk as well – some projects are riskier than others.
Six Principles of Finance
1. Time Value of Money
Money is more valuable now because it has higher purchasing power than
later if it is the same amount
Net Present Value Method – *if it's zero, it's still acceptable – promises return
equal to required rate of return
2. Risk-Return Tradeoff
More risk = more chance of a good return
3. Diversification of Investments
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Document Summary

Management serves as a sort of intermediary for the best interest of the shareholder. Manager"s role is to ensure conflicting interests are satisfied. Contractual claims eg. salary owed for working for two weeks. Under contract that these claims will be satisfied. Finance function: investing funds in the right places and getting returns back to investors. Day to day decisions: looks at current assets and liabilities short term investments critical to the company eg. having the right amount of inventory. Manager must generate money by going to outside financial markets. Investors: anyone that lends or gives a company money. Investors have expectations on return either dividends or reselling at a higher price. *stakeholder anyone who invests in a company creditor, employee, government. Profits must be considered in relation to the investment. eg. company makes. Must consider the amount of shares to the amount of profit often better to issue debt. Consider risk as well some projects are riskier than others.

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