Lecture notes Finance and Risk Management for IB

Contains lecture notes based on the lectures on 2014-2015.

Lecture one

“Chapter 1, 2 and 3” > Fundamentals of Corporate Finance

Finance = The art and science of managing wealth;

  • Making decisions about what assets to buy and when
    Take into account: Time and Uncertainty

Financial Management = Those activities that create or preserve the economic value of the assets of an individual, small business, or corporation.

The areas focused on in Finance are; Corporate finance (focus), investments, financial institutions and markets and international finance.

What is corporate finance?
Investment = What long-term investments will you make?
Timing: cash outflow today can create cash inflow in the future
Financing = Where will you get long-term financing for long-term projects (investments)?
Timing: cash inflow today and cash outflow in the future to meet obligations
Liquidity = How to manage everyday activities
Timing: Balance of cash inflows and outflows in the short term.
> Uncertainty for all cases = Risk involved. Key question; What is a sufficient return? Riskier investments mostly mean a higher return.

Responsibilities of the financial manager are investment decisions, financing decisions, short-term financial planning, oversee accounting and audit function in firm and ensuring the financial welfare of the firm.
Refer to the organizational chart in Slide 7 of the Lecture Slides to be found on Nestor; On top there is the Chief Financial Officer, with a Treasurer and a Controller under him, splitting up the Financial Management Decisions, which are;

  • Capital budgeting; Planning and managing long-term investments. Take Apple taking over Beatz for example. All done to increase the economic value and wealth of the firm

  • Capital structure; The mixture of a long-term debt and equity maintained by a firm. How much to borrow is a question to ask, but also what are the least expensive sources of funds for the firm?

  • Working capital management; The management of a firm’s short-term assets and liabilities. How much cash and inventory should be kept? And should we sell

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