Course Objectives- understand financial decision-making in the business environment- carry out short- and long-term financial planning- learn about financial statements and analyze them.Bibliography for the StudentROSS, Stephen A. et al. Financial Management. AMGH Editora, 2015.For the professor:LEMES, Antonio Barbosa Júnior; CHEROBIM, Ana Paula Mussi Szabo; RIGO, Claudio Miessa. Financial Management: Brazilian principles, fundamentals, and practices. Elsevier Editora, 2010.ROSS, Stephen A. et al. Financial Management. AMGH Editora, 2015.IntroductionFinancial ManagementFinancial management is about maximizing the wealth of the company’s shareholders. The financial manager is primarily responsible for creating value and mitigating risks and, to do so, is involved in the business as a whole.The finance function, in general, is organized into two areas: financial management and controllership. Financial management covers cash management, credit and collections, risk, foreign exchange, investment, financing, financial planning and control, relationships with shareholders and investors, and relationships with banks. Controllership includes cost and price management, internal auditing, performance evaluation, accounting, budgeting, asset control, tax planning, management reports, and financial information systems.To maximize shareholders’ wealth, the financial manager makes three fundamental decisions: investment decision, financing decision, and earnings decision.Thus, they answer three fundamental questions:> What long-term investments should you make?> Where will you obtain the financing to make these investments possible?> How will you achieve results that meet shareholders’ requirements?Financial managers contribute to the success of business enterprises by providing appropriate answers to these questions. In investment decisions, for example, they create, receive, and develop long-term business alternatives, with favorable returns for shareholders, always seeking to maximize the company’s wealth.Financial decisions occur over time. When they refer to the company’s normal activities, related to day-to-day payments and receipts, they are called short-term financial decisions, also known as working capital management. Long-term financial decisions are those related to investments, financing, and earnings, with terms of more than one year.Objective of Financial ManagementFinancial management is the art and science of managing financial resources to maximize shareholders’ wealth.Wealth maximization depends on 3 variables: investment decision, financing decision, and earnings decision.Profit maximization, long considered the company’s main objective, is an imprecise objective, because actions taken to maximize current profits may reduce future profits and vice versa. Examples include delaying advertising expenses and failing to maintain facilities and equipment.Wealth maximization is more precise because it involves the concepts of net present value, incorporating concepts of risk and cost of capital, which will be addressed throughout the classes.To increase shareholders’ wealth, the manager deals with issues of value. There are several concepts of value: a) book equity value; b) real equity value; c) net present value; d) market value; and e) liquidation value. The most widely used are those that consider discounted cash flow. Valuing their stakeholder groups is among the responsibilities of the financial manager.Functions of Financial ManagementWe can separate the functions into financial management and controllership.Regarding the functions of financial management:Cash managementCredit and collections managementRisk managementForeign exchange managementFinancing decisionInvestment decisionFinancial planning and controlRelations with shareholders and investorsRelations with banksRegarding the functions of controllership:Cost and price managementInternal auditingPerformance evaluationAccountingBudgetingAssetsTax planningManagement reportsFinancial information systemsThere is an administrative principle behind this division of functions: those who perform a task do not control it, and those who control it do not perform it. It is a practice aimed at protecting shareholders. It is observed, however, that operations that do not involve cash flows are carried out by controllership, such as cost and price management, for example.Investment DecisionWhere are the financial resources invested?How much is invested in current assets?How much in fixed assets? In which ones?What is the best composition of assets?What is the risk of the investment?What is the return on the investment?What are the new investment alternatives?In which new assets should we invest?How can the profitability of existing investments be maximized?What should be discarded, reduced, or eliminated because it does not add value?Earnings decisionAre sales objectives being achieved?Are the prices charged appropriate?What results have been obtained? How can they be maintained or improved?What is the growth in sales? And in costs? And in expenses?What is the percentage share of costs and expenses in relation to revenues?What is the net sales margin?Which costs and expenses can be reduced?Are the revenues obtained compatible with the investments?Have profits reached the established targets? How do they compare with those of the best companies in the sector?Long-Term FinancingGoing publicIssuance of shares and debenturesLoansFinancingBusiness Credit Card – BNDESACC – Advance on Foreign Exchange ContractBNDES Financing – Finame and other long-term loans and financingProger – Employment Generation ProgramShort-Term FinancingAdvance on ReceivablesTrade Bill DiscountingCheck DiscountingIssuance of Promissory NotesProexACC and ACEBusiness overdraftGuaranteed AccountVendor FinanceCommercial PapersLeasingQuestions1) How does the financial manager act in pursuit of better operating results for the company? Base your answer on the Income Statement.2) Define use value and exchange value. How is the company’s value increased? What are the various ways used to express the company’s value?3) Why do conflicts arise between managers and owners? Which objectives should prevail? Why is it so important to look after stakeholder groups?4) What are the sciences with which financial management is most closely related? Show the importance of each of them for finance. In your opinion, which one contributes the most to the financial area?
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