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Financial Management 1
Lecture 1: Introduction
Anton Miglo
Fall 2015
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Organizational comments
 Blackboard: course outline, grades, announcements,
PPT slides
 Assignments
 Business cases: Golden State Canning
 Investment game: Stock Track
 Excel practice and exercises
 Class participation
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Mini-case that will be used in this class
You have been searching for a business with growth possibilities that you can
own by yourself or with some partners, possibly members of your family.
Recently, an old school classmate called to tell you that the family of a friend
of hers was planning to sell a small canning and preserving business in
northern California. The property consists of two small plants equipped for
the canning of fruits and vegetables, located in a rural town near farms and
orchards that supply the produce to be canned. The business, currently known
as The Golden State Canning Company, Inc., has been managed by
Richard Cota and owned by Mr. Cota and his wife. At age 58, Mr. Cota plans
to retire and none of his children or their spouses wants to run the business.
Though you have no experience with food processing, your friend suggests
that you have a look at Golden State. She believes there are expansion
possibilities, particularly in new product development and marketing.
See Introduction Video from the website
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Investment game
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Some topics covered in the course
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Introduction
Financial Markets and Introduction to Stock Track Game
Introduction to Financial Analysis and Financial Ratios
Investment Decisions
Basics of Risk
Portfolios and Diversification
Cash Management and Working Capital Management
Introduction to Cost of Capital and Capital Structure
Introduction to Real Estate Investment and Finance
International Aspects of Financial Management
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Lecture 1: Topics Covered
 Finance and other branches of business
 Money and finance
 Types of business organization
 Financial decisions and organizational chart
 Financial information versus accounting
reports
 Introduction to Excel
 Additional readings: coursepack intro, video
intro
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Finance and other branches of business
 Finance and Marketing
 Finance and Human Resources Management
 Finance and General Business
Now a little more challenging….
Finance and Accounting
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Checkpoint
For each of the following activities determine
their type (accounting, finance or general
management):
 Preparing budgets for future investment
projects
 Preparing financial statements
 Making decisions about firm’s strategy
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Money and Finance
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Forms of Business Organization
Sole
proprietorship
Ease of formation/
termination
Owners liability
Easy
Unlimited
Separate legal
entity
Degree of control
Taxes
Transfer of
ownership
Partnership
Relatively Easy
Usually unlimited
No
Complete
Opportunities to
raise capital
Strong
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Requires agreement
of the partners
Limited
Complex
Limited
Yes
Based on personal Income taxes
Limited
Corporation
Separation of control
and ownership
Corporate Income Tax
& tax on dividends
Unlimited
Large
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Checkpoint
 Which form of business organization can be
recommended for:
A) An accounting firm with several senior
specialists and a small group of support staff
B) A house cleaning company with Mrs. Jones
taking phone calls from customers on her
pager and providing the most services and
hiring friends for occasional help
C) An aluminum company with sales of 250
million and 50,000 employees
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Organization Chart
Board of Directors
CEO
GM Marketing
Treasurer:
raising capital
banking relationship
CFO
GM Production
Controller:
Prepares financial statements
and budgets,
Internal accounting, taxes
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Financial Decisions
 Financing decisions (do not confuse with
financial decisions):
Capital structure choice
 Debt/equity ratio
 Long-term debt/short-term debt
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 Capital budgeting (investment) decisions
Projects’ choice
 To buy or to lease
 Assets’ choice
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Change in Google
 The shuffle also looked to have the markings of Ruth Porat, who joined Google as
its chief financial officer in March from Morgan Stanley. In Google's recent
quarterly conference call, Porat repeatedly emphasized keeping expenses under
control.
 Porat will serve as the CFO of both Alphabet and Google.
 Page will serve as the CEO of the newly created holding company and Sundar
Pichai, a long-time Google executive who most recently served as the company's
senior vice president of products, will head Google. The company's current
directors will become directors of Alphabet.
 Google co-founder Brin will become president of Alphabet, and Eric Schmidt will
be executive chairman.
 Analysts said the move, which was mainly about transparency and accountability,
could be followed by more structural changes in the future.
 "This may be step one of several steps," said Morningstar analyst Rick Summer.
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Checkpoint
 Are the following capital budgeting decisions
or financing decisions?
A) Sun Life issues new shares.
B) RIM purchases a license to own and operate
an NHL team.
C) Encana decides to construct a pipeline to
transport natural gas through the Rocky
Mountains.
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The Balance Sheet (Accounting View)
ASSETS
LIAB&EQUITY
Book Values!!!!
Cash
5.2
Receivable s
70.5
Inventory
13.2
Short-term
Investments
0
Fixed Assets
374.9
Intangible Assets
0
Total Assets
463.8
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Bank loans
Ac. Payable
Other accrued
expenses
= Long Term Bank Debt
Capital
Additional capital
Retained earnings
Liab&Shareholders’
Equity
50.7
17.4
5.2
70.0
320.5
0
0
463.8
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The Financial View of the Firm
ASSETS
LIAB&EQUITY
Market Values!!!!
Assets in place
Growth Assets
Total Assets
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463.8
0
463.8
Debt
143.3
Equity
320.5
Liab&Shareholders’
Equity
463.8
=
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Checkpoint
 For shareholders the following information is
usually more important:
A) Market values of firm’s assets/liabilities
B) Book values of firm’s assets/liabilities
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Income Statement
Sales
842.0
Cost of Googs sold
735.5
EBITDA
106.5
Depreciation & Amortization
39.1
EBIT
67.4
Net interest expense
8.7
Income Before Taxes
58.7
Income Taxes
21.1
Net Income After Taxes
37.6
Cash Dividends
37.6
Retained earnings
0.00
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Checkpoint
 Income statement is more like:
A) A snapshot (a picture of firm’s assets and
liabilities on a given date)
B) A video (a history of firm’s earnings and
expenses for a period of time)
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Financial Management: Current Issues
 Sales drop
 Revenues loss
 Dividend cuts?!
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Excel practice
 Introduction
 Creating simple formulas
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Try to put important variables in one place and use
formulas instead of numbers
1
A
Interest
rate
2
Investment
B
C
D
E
10.50%
1000
3
4
5
Earnings
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Avoid using blank columns to accommodate
cell “spillovers”
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Do not forget to name your spreadsheets
You can name sheets by clicking on the sheet tab.
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Simple formulas
1
A
Interest
rate
2
Investment
B
C
D
E
10.50%
1000
3
4
5
Earnings
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