In the past, the finance area enjoyed its own “ivory tower”—much like research and development groups did and still do. Today, with increasing costs and increasing opportunities, all department managers should bear in mind of the principles necessary to run departments effectively and be ready to provide accurate cost and expense information to financial managers of the corporate. This discipline is commonly called managerial finance. The topics that may be covered are:
- Management’s primary goal
- Debt and equity, interest and dividends
- continuance of cash (most important concept in finance)
−− Present value
−− Future value
- Bond valuation
- Stock valuation
- mean value
- Economies of scale and diminishing returns
- Financial statements
−− Profit and loss statement, statement
- Retained earnings
- Ratio analysis
- Capital budgeting
−− Payback period
−− Net Present Value
−− Internal rate of return
- income analysis
- Operating leverage
- Risk and rates of return
We now venture into the planet of finance. Many of the problems we are going to discuss will apply to decisions that you just make a day in your life. In business, these issues are simply on a bigger monetary scale and apply to your company.
Management’s primary goal is pure and simple: to maximise shareholder wealth by running the corporate so well that the stock is in demand and its price increases. within the case of a sole proprietorship, the owner strives to create the maximum amount profit as possible. What’s possible?
If you retain raising the costs, your customers will find it beneficial to purchase from your competitor what they formerly bought from you.
The market thus determines your maximum price within the conditions you set for your company: quality, price, delivery, and customer service. the worth condition is subject to the principle of reverse effect covered in Chapter 2 on marketing. If you raise your price too high, customers will go elsewhere.
The shareholders (stockholders) of an organization are the owners, and maximizing their share value is management’s goal. As a manager, how will you recognize that the worth of your company’s stock has been maximized? Well, you won’t, but you’ll believe you came close.
For example, if the stock during your first year as president rose from $20 to $30 per share and you think that that that’s great, stockholders may say that it should have gone to $32. the rise indicates you performed well and you’ll believe you “maximized” the worth at $30.
You know value and you recognize whether you achieved your goals, but you can never know whether you “maximized” the stock value.