财政目标

FinancialObjectivesoftheFirmandAgencyProblemsDr.FangmingXu119/01/2020BusinessFinanceDecisionsAboutthisModule15creditmoduleMoodleKey:BCBS1Someoftheconceptsarechallengingandyouneedtodevoteyourtimetostudyeachtopic.Assessment:Two-hourclosedbookexamination(100%)Contactdetails:Seemeinmyoffice(G111)duringofficehoursEmail:[e-mail]219/01/2020BusinessFinanceDecisionsTopicsFinancialObjectivesoftheFirmandAgencyProblemsTimeValueofMoneyInvestmentAppraisalMethodsSourcesofLong-termCapitalandCostofCapitalSourcesofShort-termCapitalandWorkingCapitalmanagementFinancialRatioAnalysis319/01/2020BusinessFinanceDecisionsResourcesMainCourseTexts:Watson,D.,andA.Head,2010(W&H),CorporateFinance:Principles&Practice,FTPrenticeHall,Fifthedition.McLaney,E.,2009(EM),BusinessFinance:TheoryandPractice,FTPrenticeHall,Eightedition.Atrill,P.,2009(PA),FinancialManagementforDecisionMakers,FTPrenticeHall,Fifthedition.RecommendedTexts:Arnold,G.,2008Pike,R.,andB.Neale,2009Thefinancialpressandrelevantbusinessjournals419/01/2020BusinessFinanceDecisionsLearningObjectivesUnderstandtheroleoffinancialmanagers;Explaintheproblemsofprofitmaximisation;Understandwhyshareholderwealthmaximisation(SWM)istheprimaryfinancialobjectiveofafirm;Describetheagencyproblemandexplainhowthisproblemmaybedealtwith.519/01/2020BusinessFinanceDecisionsBusinessFinanceBusinessfinanceisconcernedwithdevelopingandimplementingstrategiestoachievethefinancialobjectivesofanorganisation.Thisinvolvesplanningandcontrollingtheprovisionofresources,theallocationofresources,andthecontrolofresources.Thefundamentalaimoffinancialmanagersistheoptimalallocationoftheresources.619/01/2020BusinessFinanceDecisionsRoleoftheFinancialManagerAfinancialmanager’sdecisionsincludesthreepartsandtheyarehighlyinterrelated.719/01/2020BusinessFinanceDecisionsInvestmentDecisionsDividendDecisionsFinancingDecisionsPossibleCorporateObjectivesWhatshouldbetheprimaryobjectiveofcorporatefinanceandfinancialmangers?ShareholderWealthMaximisation(SWM)ProfitMaximisationSalesMaximisationSurvivalSocialresponsibility19/01/2020BusinessFinanceDecisions8ProblemsofProfitMaximisationMeasurementdifficulties(accountingissues)associatedwithprofit.Thetimescale(shortorlong)overwhichprofitshouldbemaximised.Profitfailstotakeaccountofriskandthetimevalueofmoney.919/01/2020BusinessFinanceDecisionsCorporateObjectivesBusinessesexisttocreatevalue(makemoney)fortheirowners(shareholders).Thusthecompanyshouldmakeinvestmentandfinancingdecisionswiththeobjectiveofmaximisingshareholders’wealth.Itisimportanttonotethatshareholderstakealong-termperspective.19/01/2020BusinessFinanceDecisions10ShareholderWealthMaximisationShareholderwealthmaximisationisachievedbymaximisingthe(1)valueofdividendsand(2)capitalgainsthatshareholdersreceiveovertime.Capitalgainsreflectfuturedividends.Shareholders’wealthdependson:magnitudeorsizeofcashflowstimingofcashflowsassociatedrisk19/01/2020BusinessFinanceDecisions11ShareholderWealthMaximisationThisisconsistentwithmaximisingthe(1)currentshareprice,(2)themarketvalueofcompany,and(3)thewealthofshareholders.19/01/2020BusinessFinanceDecisions12NPVBNPVCNPVANPVDCorporateNetPresentValueSharePriceSWM123ShareholderWealthMaximisationMaximisationofacompany’ssharepriceisasurrogateobjectiveformaximisationofshareholderwealth.Overall,acompany’svalueandtheshareholderwealthwillbemaximisedifthefinancialmanagermakes‘good’investment,financing,anddividenddecisions.19/01/2020BusinessFinanceDecisions13SWMinPracticeDanaPetroleumplcisaleadingBritishindependentoilbusinessthatis:committedtomaximisingshareholdervaluethroughthecreationandexecutionofhighimpactopportunities.DiamondCorpplcisadiamondproducerfocusedon:maximisingshareholdervaluethroughthedevelopmentofhighmargindiamondproductionassets.19/01/2020BusinessFinanceDecisions14WhataboutStakeholders?Shareholdersarenottheonlyonesthathaveafinancialinterestinthecompany.Astakeholderisanyonewith‘aninterest’inabusiness:ShareholdersEmployeesManagersSupplierCustomersCommunity19/01/2020BusinessFinanceDecisions15StakeholdersConflict1619/01/2020BusinessFinanceDecisionsStakeholdersPotentialConflictsEmployees&ShareholdersWagedemandsCustomers&CommunityNewstoreongreenbeltlandCustomers&ShareholdersCustomersmaydemandhigherservicelevelsShareholders&DebtholdersRisk&rewardShareholders&ManagersAgencyproblemsAgencyProblemAgencyproblem,whichariseswhenmanagersmakedecisionswhicharenotconsistentwiththeobjectiveofSWM.Thisoccursbecauseof:thedivergenceofownershipandcontroltheconflictofobjectivesbetweenmanagers(agents)andshareholder(owners)theasymmetryinformationbetweenmanagersandshareholders19/01/2020BusinessFinanceDecisions17SignsofanAgencyProblemManagersfinanceacompanymainlywithequityfinance.Managersacceptlowrisk,shortpaybackinvestmentprojects.Managersdiversifybusinessoperations.Managersfollow‘petprojects’.Managersarerewardedforperformancethatis‘belowaverage’.19/01/2020BusinessFinanceDecisions18SolutiontoAgencyProblemPotentialoptionsmayfallintooneofthefol