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
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
