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Advanced ManagerialFinance(BA 519)Indudeep S. Chhachhi
Financial ManagementCrucial element in the setup of anyorganizationReally Important Things You Need to KnowDoes not exist in isolationIt only exists within the context of acompany’s broader operating characteristicsand strategiesChhachhi/519/Ch. 02
Really important things you need toknow (to advance your career today)#1: “Finance. Eat your spinach. Finance is at the core of somany successful companies that no CEO aspirant can affordto avoid schooling in it. This will help you understand,among other things, how your company raises and allocatescapital. It will also make clear why that new product yourteam has designed might not be launched, despite itssensational showing in test markets: The numbers indicatethat most likely the returns will never clear the hurdle ratethat will cover the cost of capital it requires and deliver aprofit as well.”Fortune Magazine, January 15, 1996, p. 36.Chhachhi/519/Ch. 03
Financial Management--Contd.How does a fin. manager create value forthe firm’s shareholders?Financial management functions:Investment decisionFinancing decisionWorking Capital decisionAn optimal combination of the threedecisions will create value!Chhachhi/519/Ch. 04
What can you expect fromBA 519?What does today’s Manager (YOU) need toknow about Financial Management?1.Theoretical understanding of conceptsand analytic techniques that make upthe discipline called FINANCE Capital asset pricing model (CAPM), AssetValuation, Capital budgeting, market signaling,agency problem,.Chhachhi/519/Ch. 05
What can you expect fromBA 519?2.Application & Interpretation of thesetechniques in decision makingGrowth in Judgment RATHER than asimple accumulation of knowledgeChhachhi/519/Ch. 06
Course PreparationTime Constraints!Facilitator of Learning!Read assigned material Prior to the classWhy is the class demanding?Quantitative nature of disciplineReview background materialTheoretical foundation of FinanceReal-life decision makingChhachhi/519/Ch. 07
Course Preparation-- Contd.Print Power Point slides (from the web)http://www.wku.edu/ indudeep.chhachhi/hmba519.htmChhachhi/519/Ch. 08
Syllabus-- Contd.Case DiscussionsReal-life decision makingLearning “judgement”ReadingsClass participationGradingChhachhi/519/Ch. 09
Economic Roller Coaster!!Duration of the bull market9 years% change in the 1990s (NASDAQ) 794.7 %% change the 1990s (DJIA) 317.6 %Annual % (LT av.) change (DJIA) 15.36% (10%)Volatility is the name of the game: Thebest year ever in NASDAQ (1999 with86% gains) followed by the worst yearever (2000 with 39% loss). 2001down21%, 2002 down 31.5%, 2003 up 50%and 2004 up 8.6%Chhachhi/519/Ch. 010
Stock Market Indices--1933-2002Chhachhi/519/Ch. 011
Stock Market Indices--1999-2003Chhachhi/519/Ch. 012
Numbers behind this Bull Market1995 - 1999: Indices went up each year inthe ball park of 20%!!2000 - 2002: First time since 1939-41 thatindices were down three consecutive years!Two consecutive UP years (Thank God!@)What’s Next?Chhachhi/519/Ch. 013
Corporation vs. PartnershipPartnerships: Unlimited liability BUTlimited growth opportunitiesCorporation: Limited liability, unlimitedgrowth opportunities, BUT Double TaxationAND AGENCY PROBLEMChhachhi/519/Ch. 014
Pay for Performance?Pay Packages getting “risk-free.”Signing bonuses, “guaranteed” bonuses, stockoption repricing .Where have the directors gone?Pay-setting process has to be fair & equitable.Chhachhi/519/Ch. 015
Goal of a CorporationIs NOTto maximize salesto maximize market shareto maximize profitsAt best incomplete and at worst misleadingCan result in failure over the long-term!PRIMARY GOAL should be to:Maximize Shareholder Wealth.Chhachhi/519/Ch. 016
Advanced Managerial Finance (BA 519) Indudeep S. Chhachhi. Chhachhi/519/Ch. 0 2 Financial Management Crucial element in the setup of any organization Really Important Things You Need to Know Does n
