Unit 2: Corporate finance and the financial manager

Unit Outline
1. Why study Finance?
2. What is Financial Management
3. What is the goal of the firm?
4. The Financial Manager
- The Financial Mangers place in the corporation
- Agency problems
5. The Stock Market

Learning Objectives
After studying Unit 2, you should be able to:
1. Grasp the importance of financial information in both your personal and
business lives.
2. Describe financial management in terms of the three major decision areas that
confront the financial manager.
3. Explain the goal of the firm/financial manager and the reasoning behind that
goal.
4. Understand the potential problems arising when management of the corporation
and ownership are separated (i.e., agency problems).
5. Have a basic knowledge of some concepts related to the stock market, such as
primary and secondary market, market makers, bid-ask spread and transaction
cost.

Recommended material to study Unit 2

Chapter 1 of Berk, J.; DeMarzo, P. and Harford J. (2009)
Chapter 1 of Van Horne, J. and Wachowicz, J. (2009).
Don M. Chance: The 20 Principles of Financial Management in
http://www.bus.lsu.edu/academics/finance/faculty/dchance/Instructional/Principl
esofFinancialManagement.htm (See principles 1 to 4).
Overviews: Working Capital Management and Basic Financial Statements
in: http://www.studyfinance.com/.
An introduction to the Balance Sheet, see:
http://www.investopedia.com/video/play/introduction-balance-sheet.
Introduction to Bonds, see:
http://www.investopedia.com/video/play/understanding-bonds.
 What are stocks?, see: http://www.investopedia.com/video/play/what-are-
stocks.
What is a Dividend, see http://www.investopedia.com/video/play/what-is-
dividend.
Stocks Vs. Bonds, see: http://www.investopedia.com/video/play/stocks-versus-
bonds.
Understanding Cash Flow, see: http://www.investopedia.com/video/play/what-
is-cash-flow.
Earnings Per Share Explained, see:
http://www.investopedia.com/video/play/earnings-per-share.

Berk, J.; DeMarzo, P. and Harford J. (2009): Fundamentals of Corporate Finance. International
Financial Reporting Standards Edition. Pearson Higher Education.
Van Horne, J. and Wachowicz, J. (2009): Fundamentals of Financial Management, 13th Edition.
Pearson/Prentice Hall/ Financial Times Press.