Chapter 1

An Overview of Financial Management

LEARNING OBJECTIVES

After reading this chapter, students should be able to:

• Explain the career opportunities available within the three interrelated areas of finance.

• Identify some of the forces that will affect financial management in the new millennium.

• Briefly explain the responsibilities of the financial staff within an organization.

• Describe the advantages and disadvantages of alternative forms of business organization.

• State the primary goal in a publicly traded firm, and explain how social responsibility and business ethics fit in.

• Define an agency relationship, give some examples of potential agency problems, and identify possible solutions.

• Identify major factors that determine the price of a company’s stock, including those that managers have control over and those that they do not.

• Discuss whether financial managers should concentrate strictly on cash flow and ignore the impact of their decisions on EPS.

LECTURE SUGGESTIONS

Chapter 1 covers some important concepts, and discussing them in class can be interesting. However, students can read the chapter on their own, so it can be assigned but not covered in class. We generally spend much of the first day going over the syllabus and discussing grading and other mechanics relating to the course. To the extent that time permits, we talk about the topics that will be covered in the course and the structure of the book. We also discuss briefly the fact that it is assumed that managers try to maximize stock prices, but that they may have other goals, hence that it is useful to tie executive compensation to stockholder-oriented performance measures. If time permits, we think it’s worthwhile to spend at least a full day on the chapter. If not, we ask students to read it on their own, and to