Lecture 01
Lecture 01
Lecture 1
1-1
Chapter 1
Introduction to Financial
Management
Forms of Business Organization
Goals of Corporation
Stock Prices and Intrinsic Value
Conflicts Between Managers and
Stockholders
Recent Trends 1-2
Forms of Business Organization
Proprietorship
An unincorporated business owned by 1
individual
Partnership
An unincorporated business owned by two or
more persons
Corporation
An incorporated business owned by many
shareholders
1-3
Proprietorships and Partnerships
Advantages
Ease of formation
Subject to few regulations
No corporate income taxes
Disadvantages
Difficult to raise capital
Unlimited liability
Limited life
1-4
Corporation
Advantages
Unlimited life
Easy transfer of ownership
Limited liability
Ease of raising capital
Disadvantages
Double taxation
Cost of set-up and report filing
1-5
Tax Rates of Profits Tax in HK
1-6
Financial Goals of the Corporation
1-8
Determinants of Intrinsic Values and
Stock Prices
Managerial Actions, the Economic
Environment, Taxes, and the Political Climate
Stock’s Stock’s
Intrinsic Value Market Price
Market Equilibrium:
Intrinsic Value = Stock Price
1-9
1-10
Conflicts Between Managers and
Stockholders
Managers are naturally inclined to act in their
own best interests (which are not always the
same as the interest of stockholders).
But the following factors affect managerial
behavior:
Managerial compensation packages
Direct intervention by shareholders
The threat of firing
The threat of takeover
1-11
Some Important Business Trends
1-12
Chapter 2
Financial Markets and
Institutions
The Capital Allocation Process
Financial Markets
Sections 2-1 to 2-6
1-13
The Capital Allocation Process
In a well-functioning economy, capital flows
efficiently from those who supply capital to
those who demand it.
Suppliers of capital – individuals and
institutions with “excess funds.” These groups
are saving money and looking for a rate of
return on their investment.
Demanders or users of capital – individuals and
institutions who need to raise funds to finance
their investment opportunities. These groups
are willing to pay a rate of return on the capital
they borrow. 1-14
What is a market?
1-15
Types of Financial Markets
1-16
Stock Market Transactions
1-18
S&P 500 Index, Total Returns: Dividend Yield
+ Capital Gain or Loss, 1993-2022 (30 years)
Monthly trade
Market cap Open Close
Rank Stock exchange Region Market place volume
(USD tn) (USD bn) (local) (local)
United
1 New York Stock Exchange New York City 26.2 1,452 9:30 16:00
States
United
2 Nasdaq New York City 19.4 1,262 9:30 16:00
States
3 Shanghai Stock Exchange China Shanghai 7.37 536 9:30 15:00
Amsterdam
Brussels
Dublin
4 Euronext Europe Lisbon 6.41 174 9:00 17:30
Milan
Oslo
Paris
5 Shenzhen Stock Exchange China Shenzhen 5.74 763 9:30 15:00
6 Japan Exchange Group Japan Tokyo 5.16 481 9:00 15:00
7 Hong Kong Stock Exchange Hong Kong Hong Kong 4.97 182 9:30 16:00
8 Bombay Stock Exchange India Mumbai 3.96 9:15 15:30
9 National Stock Exchange India Mumbai 3.4 9:15 15:30
10 Toronto Stock Exchange Canada Toronto 3.25 97 9:30 16:00
1-22
Where do we stand?