2 basic principles and concepts of financial management. Basic concepts of financial management (2) - Abstract

Content

Introduction

I. The essence of financial management, its functions and principles

1.1 Financial management as a scientific direction and practical field of activity

1.2 Functions and principles of financial management

II. Basic concepts of financial management

2.1 The concept of the time value of money

2.2 The concept of accounting for the inflation factor

2.3 The concept of risk management

2.4 The concept of ideal capital markets

2.5 Market Efficiency Hypothesis

2.6 Discounted cash flow analysis

2.7 Relationship between risk and return

2.8 Modigliani-Miller's theory of capital structure

2.9 Modigliani-Miller dividend theory

2.10 Option pricing theory

2.11 Agency theory

2.12 The concept of asymmetric information

Conclusion

List of sources used

Introduction

Financial management is a type of professional activity aimed at managing the financial and economic functioning of a company based on the use of modern methods. Financial management is one of the key elements of the entire system of modern management, which has a special priority for the current conditions of the Russian economy. Financial management includes: the development and implementation of the company's financial policy using various financial instruments, decision-making on financial issues, their specification and development of implementation methods, information support through the preparation and analysis of the company's financial statements, evaluation of investment projects and the formation of an investment portfolio, evaluation capital costs, financial planning and control, organization of the apparatus for managing the financial and economic activities of the company.

Methods of financial management allow you to evaluate: the risk and profitability of a particular method of investing money, the efficiency of the company, the rate of capital turnover and its productivity.

The task of financial management is the development and practical application of methods, means and tools to achieve the goals of the company as a whole or its individual production and economic units - profit centers. Such goals can be: maximizing profits, achieving a stable rate of return in the planned period, increasing the income of the management team and investors (or owners) of the company, increasing the market value of the company's shares, etc. Ultimately, all these goals are focused on increasing the income of investors (shareholders) or owners (owners of capital) of the firm. Financial management is based on a number of interrelated fundamental concepts developed within the framework of the theory of finance. The concept (from Latin conceptio - understanding, system) is a certain way of understanding and interpreting a phenomenon. With the help of a concept or a system of concepts, the main point of view on a given phenomenon is expressed, some constructivist frameworks are set that determine the essence and directions of development of this phenomenon.

The purpose of this course work is to review the basic concepts of financial management, its functions and principles

The object of the study is financial management, and the subject is the concept of financial management and its functions.

I . Financial management as a scientific direction and practical field of activity

Financial management as an independent scientific direction was formed in the early 60s of the XX century. It arose to theoretically substantiate the role of finance at the firm level.

“Separate fundamental developments in the theory of finance were carried out even before the Second World War; in particular, we can mention the well-known model for assessing the value of a financial asset, proposed by J. Williams in 1938 and which is the basis of the fundamental approach.

According to this model, the theoretical value of an asset depends on 3 parameters: expected cash flows (CF), length of the forecast period (t) and profitability (r). With respect to the first parameter, there are various approaches and models, for example, for shares it is a dividend flow, for bonds it is coupons and face value. Depending on the type of financial asset, the time parameter can have a limited (bonds) and unlimited (stocks) forecasting horizon. The third parameter - the most significant one, is determined by the investor based on the profitability of alternative options for investing capital. For example, it can be calculated from government bond interest k sb and risk premium k r .

This model implies the capitalization of income received. For example, the evaluation of a bond according to the formula will be correct if the regularly received interest is not used for consumption, but is immediately invested in the same bonds or other securities with the same yield and degree of risk.

Modifications of this model are used to estimate the value of stocks and bonds.

Financial management owes its creation to representatives of the Anglo-American financial school: G. Markowitz, F. Modigliani, M. Miller, F. Black, M. Scholes, Y. Fama, W. Sharpe and other scientists - the founders of C modern theory of finance. It is based on 4 main theses:

a) The economic power of the state, and hence the stability of its financial system, is determined by the economic power of the private sector, the core of which is large corporations. So, in the US, 90% of all income is generated by corporations, the number of which does not exceed 20% of the business sector. A corporation is a large commercial organization owned by its shareholders. It is characterized by 3 important features: legal independence in relation to the owners, limited liability (that is, the company's shareholders are not personally liable for its debts), separation of ownership from management.

b) State intervention in the activities of the private sector is expediently minimized.

c) From available sources of financing that determine the possibility of development large corporations, the main ones are profit and capital markets.

d) The internationalization of markets leads to the fact that the general trend of development financial systems various countries is becoming a desire for integration.

It is generally accepted that the work of Harry Markowitz, the author of portfolio theory, laid the foundation for financial management. They outlined the "methodology for making decisions in the field of investing in financial assets" . Further development portfolio theory received in the 60s of the XX century thanks to William Sharp, J. Lintner and J. Mossin, who developed a model for assessing the profitability of financial assets - the Capital Asset Pricing Model (CAPM), which establishes a direct dependence of the profitability of a financial asset (ki) on its market risk (? i). The beta coefficient shows the level of variability in the return of an asset in relation to the movement of the market.

The return on asset i includes 2 components: the return on the risk-free asset (k rf) and the risk premium. The risk premium depends on:

1) market portfolio risk premiums (k m - k rf);

2) the values of the b-coefficient.

This model is still one of the most significant scientific achievements in the theory of finance. In 1990, Harry Markowitz and William Sharp, along with Merton Miller, were awarded Nobel Prize for his work on the theory of finance.

Discussions on CAPM continue to the present, as alternative approaches, the theory of arbitrage pricing (APT), the theory of option pricing, and others have been proposed.

So, in particular, the APT concept developed by Stephen Ross is based on the statement that the actual profitability of any stock consists of 2 parts: normal, or expected, and risky, or uncertain. The last component is determined by many economic factors, such as GDP growth, inflation, interest rates, exchange rate and others.

In the late 1950s, an article by Eugene Fama appeared that examined the relationship between the price of financial assets and information circulating in the capital market. According to the stock market efficiency hypothesis, with full and free access of market participants to information, the share price at the moment is the best estimate of its real value. In an efficient market, any new information is immediately reflected in the prices of financial assets. But, realizing that an ideally efficient market does not exist in reality, the author singled out 3 forms of capital market efficiency: strong, moderate and weak.

In 1958, Franco Modigliani and Merton Miller published a paper in which they proved that the value of any firm is determined solely by its future earnings and is completely independent of its capital structure. This conclusion, known today as the Modigliani-Miller theorem, is the cornerstone of modern corporate finance theory. Since their theory was based on a number of constraints, further research in this area was devoted to exploring the possibilities of weakening them. Thus, the factor of taxation and bankruptcy costs were introduced into the theory.

Of all the innovations mentioned, 2 directions - portfolio theory and capital structure theory - represent the basis of financial management, since they allow answering 2 fundamental questions: where to get and where to invest financial resources.

“Financial management in a practical plane is a system of relationships that arise in a corporation regarding the attraction and use of financial resources” .

Financial management has 3 major areas.

1. Management of investment activity. Where to invest financial resources with maximum efficiency?

2. Management of sources of financial resources. Where will the required financial resources come from?

3. General the financial analysis and planning.

1.2 Functions and principles of financial management

The objects of financial management are finance and financial relations. Financial relations in terms of cash flows connect the organization with other organizations, founders, personnel, government agencies. In general, the functions of financial management are in the formation of funds (generation of income), the use of funds (implementation of expenses) and control over the formation and use of funds.

At a practical level, the functions of financial management are represented by specific functions of the subjects of financial management within the framework of management activities. The theory of financial management, summarizing the activities of the subjects of financial management, identifies the following functions: planning, forecasting, organization, regulation, coordination, stimulation and control. In general, these functions relate to general management, but taking into account the specifics of the financial management object, these functions are considered from a specific perspective.

The center of planning in the field of financial management is the development of financial plans, which are the main document that involves the development of a set of measures to develop solutions and implement them. Given the key role of planning in financial management great attention is also given to the development of a methodology for drawing up financial plans. Forecasting in financial management is the basis for planning and is the development of expected changes in the financial condition of the organization in the long term. Given the variability in the development of the financial condition of an organization, forecasting in financial management should imply the development of alternative financial indicators. The functions of organization, coordination and regulation in financial management are aimed at building a system of financial relations that contribute to the implementation of financial plans.

The last group of financial management functions is aimed at organizing the stability of the financial system by stimulating, that is, inducing elements of the system to certain actions, and control aimed at checking the state of the financial system, its operation, and the implementation of the financial plan. Given the fact that control, as a function of financial management, implies a mandatory analysis of the results, it should be considered as a component of financial planning as a whole.

The purpose of financial management is to maximize the wealth of owners through a rational financial policy based on:

long-term profit maximization;

maximizing the market value of the firm;

Tasks of financial management.

Ensuring the formation of the volume of financial resources necessary to ensure the intended activities

· Ensuring the most efficient use of financial resources;

optimization of cash flow;

optimization of costs;

Ensuring profit maximization of the enterprise;

ensuring minimization of the level of financial risk;

· maintenance of constant financial balance of the enterprise.

· Ensuring sustainable growth of economic potential;

assessment of the potential financial capabilities of the enterprise for the coming periods;

Ensuring target profitability;

to avoid bankruptcy crisis management);

· Ensuring the current financial stability of the organization.

I will consider how these tasks of financial management are implemented.

1. Ensuring the formation of a sufficient amount of financial resources in accordance with the objectives of the development of the enterprise in the coming period. This task is implemented by determining the total need for financial resources of the enterprise for the coming period, maximizing the volume of attracting own financial resources from internal sources, determining the feasibility of forming own financial resources from external sources, managing the attraction of borrowed funds, optimizing the structure of sources for the formation of resource financial potential .

2. Ensuring the most efficient use of the formed volume of financial resources in the context of the main activities of the enterprise.

Optimization of the distribution of the formed volume of financial resources provides for the establishment of the necessary proportionality in their use for the purposes of the production and social development of the enterprise, the payment of the required level of income on invested capital to the owners of the enterprise, etc. In progress production consumption formed financial resources in the context of the main activities of the enterprise, the strategic goals of its development and the possible level of return on investment should be taken into account.

3. Optimization of cash flow.

This problem is solved by effectively managing the enterprise's cash flows in the process of its cash circulation, ensuring synchronization of the volumes of receipts and expenditures of funds for certain periods, maintaining the necessary liquidity of its current assets. One of the results of such optimization is the minimization of the average balance of free cash assets, which reduces losses from their inefficient use and inflation.

4. Ensuring the maximization of the profit of the enterprise with the foreseen level of financial risk.

Profit maximization is achieved through the effective management of the company's assets, the involvement of borrowed funds in the economic turnover, and the choice of the most effective areas of operating and financial activities. At the same time, in order to achieve the goals of economic development, the enterprise should strive to maximize not the balance sheet, but the net profit remaining at its disposal, which requires the implementation of an effective tax, depreciation and dividend policy. Solving this problem, it must be borne in mind that the maximization of the level of profit of the enterprise is achieved, as a rule, with a significant increase in the level of financial risks, since there is a direct relationship between these two indicators. Therefore, profit maximization should be ensured within the limits of acceptable financial risk, the specific level of which is set by the owners or managers of the enterprise, taking into account their financial mentality (the ratio to the degree of acceptable risk in the implementation economic activity). But there are also official standards (for example, the maximum allowable ratio between the volume of own and borrowed financial resources of commercial banks).

5. Ensuring the minimization of the level of financial risk with the expected level of profit.

If the level of profit of the enterprise is set or planned in advance, an important task is to reduce the level of financial risk that ensures the receipt of this profit. Such minimization can be achieved by diversifying the types of operating and financial activities, as well as the portfolio of financial investments; prevention and avoidance of certain financial risks, effective forms of their internal and external insurance.

6. Ensuring the constant financial balance of the enterprise in the process of its development.

This balance is characterized by a high level of financial stability and solvency of the enterprise at all stages of its development and is ensured by the formation of an optimal structure of capital and assets, effective proportions in the volume of formation of financial resources due to various sources, a sufficient level of self-financing investment needs. All the considered tasks of financial management are closely interrelated, although some of them are of a multidirectional nature (for example, ensuring the maximization of the amount of profit while minimizing the level of financial risk; ensuring the formation of a sufficient amount of financial resources and a constant financial balance of the enterprise in the process of its development, etc. ).

Basic principles of financial management:

the financial independence of the enterprise;

self-financing

financial interest,

· liability,

· provision of risks with financial reserves.

II . Basic concepts of financial management

2.1 The concept of the time value of money

The concept of time value of money plays a central role in the practice of financial calculations and expresses the need to take into account the time factor in long-term financial transactions by estimating and comparing the value of money at the beginning of project financing and when they are returned in the form of future cash receipts.

The concept of the time value of money is that the value of money changes over time, taking into account the rate of return in the financial market, which is usually the rate of interest on loans. Thus, the same amount of money in different periods of time has a different value. At the same time, the value of money is always higher than in any future period. This disparity is determined by the action of three main factors: inflation, the risk of not receiving income when investing capital, and the characteristics of money, considered as one of the types of current assets.

As you know, inflationary processes, characteristic of any economy, cause the depreciation of money. This means that the currency today has a greater value than tomorrow. This situation determines the desire to invest money in order to at least receive income covering inflationary losses.

"In any financial transaction there is a risk of non-return of invested funds and (or) non-receipt of income" . This risk arises from the fact that any contract under which the receipt of money is expected in the future is likely to be unfulfilled or not fully performed. Every member of the business can probably remember concrete examples associated with expected in the future, but not received income. For example, a situation familiar to many: a regular customer and partner, who was granted a significant deferred payment, did not fulfill his obligations to the supplier due to the fact that he went bankrupt, although at the time of delivery there were no signs of such a result.

Considering cash as one of the types of assets, it should be noted their main feature - any asset must generate profit. It follows from this that the amount expected to be received in the future must be known more than the amount embedded in currently time.

The concept of the time value of money is of fundamental importance due to the fact that financial decisions involve the evaluation and comparison of cash flows carried out in different time periods. Methodological tools of the value of money include:

1. Calculation of simple interest

When assessing the change in the value of money over time, the following terms and concepts are used:

Percent- this is the amount of income from the provision of capital in debt or payment for the use of loan capital in all its forms (credit interest, deposit interest, etc.).

simple interest- this is the amount of income that accrues to the principal amount of capital and can be paid in each accrual interval, but does not participate in further calculations as a calculation base in subsequent periods. The calculation of simple interest is used, as a rule, for short-term financial transactions.

Value Addition (Compounding)- this is the process of bringing the present value of money to the future value by adding the accrued interest to their initial amount.

Future value of money- the amount of money invested at the moment, into which they will turn after a certain period of time, taking into account the interest rate.

Discounting value- this is the process of bringing the future value of money to the present by removing from their future value the amount of the corresponding interest, called the discount.

When calculating the amount of simple interest in the process of accruing value, the following formula is used:

where I - the amount of interest for a specified period of time as a whole; P is the initial (real) value of money; n is the number of periods for which interest payments are calculated; i - used interest rate, expressed in fractions of a unit.

The future value of the contribution (S) is determined by the formula:

S = P + I = P (l + n * i).

The initial deposit amount is 1000 rubles;

· Interest rate accrued quarterly - 10%.

Let's do the necessary calculations:

I \u003d 1000 * 4 * 0.1 \u003d 400;

S= 1000 + 400= 1400. Under the given conditions, the amount of simple interest accrued for the year will be 400 rubles, the future value of the deposit is 1400 rubles. To calculate the amount of discount (D) when calculating simple interest, the following formula is used:

D = S - S / (1 + n * i)

The present value of money (P) is determined by:

P = S / (1 + n * i)

2. Compound interest calculation

Compound interest- this is the amount of income that accrues in each interval and is added to the principal amount of capital and participates as a basis for accrual in subsequent periods. Compound interest is usually used for long-term financial transactions (for example, investing).

When calculating the amount of future value (Sc), the formula is applied:

Sc = P * (1 + i) n .

Accordingly, the amount of compound interest is determined by:

where Ic - the amount of compound interest for a specified period of time; P is the initial cost of money; n is the number of periods for which interest payments are calculated; i - used interest rate, expressed in fractions of a unit.

Formulas for calculating compound interest are basic in financial calculations. The economic meaning of the factor (1 + i) n is that it shows what one ruble will be equal to in n periods at a given interest rate i. To simplify the calculation procedure, special financial tables have been developed for calculating compound interest, which allow you to determine the future and present value of money.

The present value of money (Rc) when calculating compound interest is:

Pc = Sc / (1 + i) n

The discount amount (Dc) is determined by:

D c \u003d Sc - Rc.

When calculating the time value of money in terms of compound interest, it must be borne in mind that the results of the assessment are affected not only by the interest rate, but also by the number of payment intervals during the entire payment period, which leads to the fact that in some cases it is more profitable to invest money under a lower rate, but with more payouts during the pay period.

2.2 The concept of accounting for the inflation factor

The concept of accounting for the inflation factor is "the need to really reflect the value of assets and cash flows and ensure compensation for income losses caused by inflationary processes in the implementation of long-term financial transactions" .

Inflation- the process of constant excess of the growth rate of the money supply over the commodity supply (including the cost of works and services), as a result of which there is an overflow of circulation channels with money, which leads to their depreciation and an increase in prices for goods.

Let us consider the most important terms and concepts used in assessing inflationary processes.

Nominal interest rate- this is the rate set without taking into account the change in the purchasing value of money due to inflation.

Real interest rate- this is the rate set taking into account changes in the purchasing value of money due to inflation.

inflation premium- this is an additional income paid (or provided for payment) to a creditor or investor in order to compensate for losses from the depreciation of money associated with inflation.

To predict the annual inflation rate, the following formula is used:

TI g \u003d (1 + TI m) 12 - 1,

where TI r is the projected annual inflation rate, in fractions of a unit; TI m - the expected average monthly inflation rate in the coming period, in fractions of a unit.

To estimate the future value of money, taking into account the inflation factor, a formula based on the Fisher model is used:

S = P x [(l + Ip) x (1 + T)] n - 1,

where S is the nominal future value of the deposit, taking into account the inflation factor; P is the initial cost of the deposit; Iр - interest rate, in fractions of a unit; T is the predicted rate of inflation, in fractions of a unit; n is the number of intervals for which interest is calculated.

The Fisher model has the form:

I = i + but + i * but ,

where I is the real interest premium; i - nominal interest rate; a is the rate of inflation.

This model suggests that in order to assess the feasibility of investing in an inflationary environment, it is not enough to simply add up the nominal interest rate and the projected inflation rate, it is necessary to add to them an amount that is their product i * but .

It should be noted that forecasting inflation rates is a rather complicated and time-consuming process, the results of which are probabilistic in nature and are subject to a significant influence of subjective factors. In practice, to simplify calculations and avoid the need to take inflation into account, calculations are made in hard currencies.

2.3 The concept of risk management

Risk- this is "the possibility of changing the expected result, mainly in the form of losses, due to the implementation of one of the many existing options for combinations of conditions and factors that affect the analyzed object" . Of course, it can be assumed that the implementation of a risk event will lead to a positive financial result. For example, as a result of a natural disaster, part of the company's property was lost, but the amount of compensation received from the insurance company under a previously concluded contract not only compensated for the losses incurred, but also made it possible to receive some income. But still, usually, first of all, risk is understood as the possibility of the occurrence of adverse events that cause losses, including financial ones.

The concept of taking into account the risk factor consists in assessing its level in order to ensure the formation of the required level of profitability of financial and economic operations and the development of a system of measures to minimize its negative financial consequences. Return is understood as the ratio of the income generated by a certain asset to the amount of investment in this asset.

Entrepreneurship is always associated with risk. At the same time, there is usually a clear relationship between the risk and return of this activity: the higher the required or expected return (i.e. return on invested capital), the higher the degree of risk associated with the possibility of not receiving this return, and vice versa. When making management decisions, various tasks can be set, including: maximizing profitability or minimizing risk, but, as a rule, more often it is about achieving a reasonable balance between risk and profitability. Within the framework of financial management, the risk category is important when making decisions on the capital structure, forming an investment portfolio, substantiating dividend policy, etc.

To assess the risk, qualitative and quantitative methods are used, including: sensitivity analysis, scenario analysis, Monte Carlo method, etc.

For rate level of financial risk (UR), an indicator that characterizes the likelihood of a certain type of risk and the amount of possible financial losses in its implementation, the following formula is applied:

UR \u003d BP x RP,

where BP is the probability of occurrence of this financial risk; RP - the amount of possible financial losses in the realization of this risk.

Risk assessment is necessary to determine the risk premium:

R Pn = (R n - An) x β

where R Pn is the level of the risk premium for a particular project; R n - average rate of return in the financial market; And n is the risk-free rate of return in the financial market (in Western practice for government debt obligations); β is a beta coefficient that characterizes the level of systematic risk for a specific project.

2.4 The concept of ideal capital markets

Most of the early theories of finance are based on the assumption of the existence of ideal capital markets (perfect capital markets). The ideal capital market is one in which there are no difficulties, so that the exchange of securities and money is easy and does not involve any costs. An ideal capital market has the following characteristics:

there are no transaction costs;

no taxes;

available a large number of buyers and sellers, and none of them can influence the market price of financial assets;

there is equal access to the market for all investors;

all market participants have the same amount of information;

all market participants have the same expectations;

there are no costs associated with financial difficulties (threat of bankruptcy).

2.5 Market Efficiency Hypothesis

Decision making in the capital market is closely related to the concept of market efficiency. The logic of such operations is as follows. The volume of transactions for the purchase or sale of securities depends on how closely current prices correspond to intrinsic values. The price depends on many factors, including information. Suppose that a market in equilibrium has new information that a company's stock price is undervalued. This will lead to an increase in demand for shares and the subsequent rise in price to a level corresponding to the intrinsic value of these shares. How quickly information is reflected in prices is characterized by the level of market efficiency. In the application to the capital market, the term "efficiency" is understood in terms of information, i.e. the degree of market efficiency is characterized by the level of its information saturation and the availability of information to market participants. IN scientific literature the concept in question is known as the market efficiency hypothesis « Efficient Market Hypothesis » .

According to this hypothesis, with full and free access of market participants to information, the share price at the moment is the best estimate of its real value. In an efficient market, any new information is immediately reflected in the prices of financial assets. Moreover, this information enters the market randomly. Market efficiency is ensured by the fulfillment of 4 conditions:

information becomes available to all market participants simultaneously, and its receipt is not associated with any costs;

there are no transaction costs, taxes and other factors preventing the conclusion of transactions;

transactions entered into by an individual or legal entity, cannot affect general level prices;

all market participants act rationally, seeking to maximize the expected benefits.

Obviously, all these 4 conditions are not met in any real market. Therefore, weaker assumptions about information efficiency are introduced into the theory. There are 3 forms of efficiency: weak, moderate and strong.

In conditions of a weak form of efficiency, current market prices fully reflect the price dynamics of previous periods. A potential investor cannot derive additional benefits for himself by analyzing trends, i.e. you cannot predict the price based on past price data.

Studies have been conducted to measure the correlation between returns on securities over a period of time. In general, studies have shown a weak trend towards a positive correlation of returns on short-term securities. However, when returns are adjusted for risk and transaction costs, this correlation disappears.

The second way of empirical testing was to study various methods of making transactions in the market in order to determine whether one or another tactic leads to extra profits. In general, the results indicate that the use of any method does not guarantee super profits.

The moderate form of efficiency (semistrong form) assumes that current market prices reflect not only price changes in the past, but also all other publicly available information. Thus, it does not make sense for an analyst to study price statistics, issuer reports, news of the financial world, because. any publicly available information is immediately reflected in share prices before you can use it in your practice.

For the purpose of empirical confirmation, 2 types of studies were conducted:

studying the reaction of prices to the receipt of new information;

evaluation of investment profitability indicators by stock market professionals.

The study studied the reaction of prices to messages about a share split, an increase in dividends, mergers of firms, investments, and share issues. Empirical Research generally confirmed the logic of the moderate form of efficiency. For example, consider how stock prices react to information about a company takeover. In most cases, the acquiring company is willing to pay a premium for the acquired company in excess of the current market price; as soon as information about the takeover becomes available to the market, the price of the shares of the target company rises in anticipation of such a premium. In one day, the new price absorbs the entire takeover premium.

Studies have been conducted to determine whether professional participants in the securities market are able to generate excess returns on the portfolios they manage. The results of these studies were strong evidence for the correctness of the moderate efficacy hypothesis. As a rule, financial analysts have publicly available information. In some years, some of them achieve relatively better results, while others achieve relatively worse results. However, on average, these specialists cannot “beat” the market.

Although numerous studies confirm the presence of a moderate form of effectiveness, however, some analytical work refute this concept. For example, the behavioral theory of market pricing argues that most people tend to overreact to dramatic events. As a result, bad news usually drives stock prices down more than they should. The opposite applies to good news. If this theory is correct, then windfall profits can be generated by buying securities that have just fallen in price due to negative information.

There is no consensus in scientific circles about the existence of a moderate form of effectiveness. But in general, the general position is that in fundamental analysis it is possible to detect overestimated or undervalued securities, there may be an overreaction to new information, but securities prices still reflect all publicly available information. The majority of traders do not believe in a moderate form of efficiency, and many of them do not even believe in the existence of a weak form of efficiency. Financial Analyst dealing with fundamental and technical analysis, is a significant figure for exchange offices, investment funds. For a wealth manager, gaining an advantage through fundamental analysis justifies the cost of paying a good analyst.

The strong form of efficiency means that current market prices reflect all information, both publicly available and available only to individuals. If this hypothesis is correct, then no one can get windfall profits, not even so-called insiders (persons who work for the company and/or, by virtue of their position, have access to confidential information that can benefit them). Almost no one believes in the validity of such an assumption. Studies have confirmed that insiders make higher than normal profits using information that is not publicly disclosed.

In general, the available evidence indicates that securities markets are efficient, but not perfectly efficient.

2.6 Discounted cash flow analysis

“The choice of investment option is based on a quantitative assessment of the cash flow associated with the project as a set of cash inflows and outflows generated by this project in the context of the allocated time periods” . The process of estimating future cash flows is called discounted cash flow analysis. The concept of analysis was developed by John Barr Williams. Myron Gordon subsequently applied this method to corporate financial management, and also used the cost of capital in his studies. The analysis is carried out in 4 stages:

I - calculation of projected cash flows. For example, for bonds, the projected cash flow will be determined by the issuer's coupon and par obligations;

II - assessment of the degree of risk for cash flows;

III - inclusion of risk assessment in the analysis. One of two methods of accounting for the degree of risk is used: the risk-free equivalent method and the risk-adjusted discount rate. When using the first method, the expected cash flows are directly adjusted - the higher the risk, the lower the value of the elements of the cash flow. The second method involves adjusting the discount rate, i.e. the higher the risk, the higher the rate;

IV - determination of the current value of the cash flow. The calculation technique is based on the time value of money.

The time value of money is an objectively existing characteristic of monetary resources, its meaning is that the monetary unit available today and the monetary unit expected to be received after some time are not equivalent. This disparity is explained by the action of 3 main reasons: inflation, the risk of not receiving the expected amount and capital turnover. The depreciation of money that occurs in conditions of inflation causes, on the one hand, a natural desire to invest them, and on the other hand, explains why the money available and expected to receive differ.

Since there are practically no risk-free situations in the economy, there is always a non-zero probability that for some reason the amount expected to be received will not be received.

Turnover is that the funds must generate income at a rate that seems acceptable to the owner of these funds. The amount available at the moment can be immediately put into circulation and thus bring additional income.

An important role in the analysis is played by the concept of opportunity costs. Suppose that someone unexpectedly won $100,000 in the lottery, then they evaluate several alternative options for investing this amount. Can these 100,000 rubles be considered free capital? No. By investing 100,000 rubles in one of the projects, he loses the opportunity to invest in all other projects. Thus, the cost of invested capital is taken in the amount of opportunity costs. Therefore, the discount rate should reflect the return that could be received from investing in the best possible alternative project that has the same degree of risk. If the present value is calculated on the basis of a discount rate equal to the cost of capital of the firm, then we can say that in this case the concept of opportunity costs is applied. Since instead of investing funds in this project, the company could invest them in securities that have the same degree of risk as the project, and receive an income corresponding to the price of the company's capital. The discount rate takes into account 3 factors: the degree of risk of a particular cash flow, i.e. the higher the risk, the higher the rate; the prevailing rate of return (the rate should reflect the average return prevailing in the economy); periodicity of cash flows.

2.7 Relationship between risk and return

The concept of a trade-off between risk and return is that the receipt of any income is fraught with risk, and the relationship is directly proportional: the higher the expected return, the higher the degree of risk associated with the possible non-receipt of this return. Profitability and risk, as you know, are interrelated categories. Most general patterns, reflecting the relationship between the accepted risk and the expected return on the investor's activity, are the following:

Riskier investments tend to have higher returns;

With the growth of income, the probability of receiving it decreases, while a certain minimum guaranteed income can be obtained with little or no risk.

The optimal ratio of income and risk means achieving a maximum for the combination of "profitability - risk" or a minimum for the combination of "risk - profitability". In this case, two conditions must be simultaneously met: 1) no other ratio of profitability and risk can provide greater profitability for a given or lower level of risk;

2) no other ratio of return and risk can provide less risk at a given or higher level of return.

However, since in practice "investment activity is associated with multiple risks and the use of various resource sources, the number of optimal ratios increases" . In this regard, in order to achieve a balance between risk and income, it is necessary to use a step-by-step solution method by successive approximations. The implementation of investment activity involves not only the acceptance of a certain risk, but also the provision of a certain income. If we assume that minimum risk corresponds to the minimum required income, then several sectors can be distinguished, characterized by a certain combination of income and risk: A, B, C.

Sector A, investments in which do not provide the minimum required income, can be considered as an area of insufficient return. Operating in sector C is associated with high risks that reduce the possibility of obtaining expected high returns, therefore sector C can be defined as an area of high risk. Investments in sector B provide the investor with the achievement of income at an acceptable risk, therefore, sector B is the area of optimal values of the ratio of profitability and risk.

The category of risk in financial management is considered in various aspects: when evaluating investment projects, forming an investment portfolio, choosing financial instruments, making decisions on the capital structure, justifying dividend policy.

The main conclusions of the Markowitz theory:

to minimize risk, investors should combine risky assets into a portfolio;

the level of risk for each individual type of asset should be measured not in isolation from other assets, but in terms of its impact on the overall risk level of a diversified investment portfolio.

At the same time, portfolio theory does not specify the relationship between risk and return. This relationship takes into account the model for assessing the profitability of financial assets, developed by W. Sharp, J. Mossin and J. Lintner. According to this model, the required return for any type of risky assets is a function of 3 variables: risk-free return, average return on the market, and the index of return fluctuation of a given financial asset relative to the average return on the market.

2.8 Modigliani-Miller's theory of capital structure

key question financial manager: the formation of the company's capital. In 1958, Franco Modigliani and Merton Miller published The Cost of Capital, Corporation Finance, and the Theory of Investment, which became a real discovery in the theory of finance. They came to the conclusion that the value of any firm is determined solely by its future earnings and does not depend on the capital structure. When proving the theorem, they proceeded from the presence of an ideal capital market. The essence of the proof is as follows: if the financing of the company's activities is more profitable at the expense of borrowed capital, then the owners of the shares of a financially independent company will prefer to sell their shares, using the proceeds to purchase shares and bonds of a financially dependent company in the same proportion as the capital structure of this company .

Conversely, if the financing of the firm turns out to be more profitable when using equity, then the shareholders of a financially dependent firm will sell their shares and buy shares of a financially independent firm with the proceeds and, taking a loan from a bank secured by these shares, will buy an additional number of shares of the same firm. The income of the new block of shares of the investor, after deducting interest on the loan, will be higher than the previous income. Then the sale of a block of shares in a financially dependent company will lead to a decrease in its value, and the greater income received by the shareholders of a financially independent company will lead to an increase in its value. Thus, arbitrage operations with the replacement of securities of a more expensive firm by securities of a cheaper one will bring additional income to private investors, which will eventually lead to equalization of the value of all firms of the same class with the same income.

In 1963, Modigliani-Miller published a second paper on the structure of capital, which introduced the factor of corporate taxation into the original model. Taking into account the presence of taxes, it has been proven that the price of a company's shares is directly related to the use of debt financing: the higher the share of debt capital, the higher the share price. This conclusion is due to the taxation of corporate income in the United States. Interest on loans is paid from profit before taxes, which reduces the size of the taxable base and the amount of taxes. Some of the taxes are shifted from the corporation to its creditors, and the financially independent firm has to bear the entire burden of taxes itself. Thus, with an increase in the share of borrowed capital, the share of the company's net income that remains at the disposal of shareholders increases. Later, various researchers, by softening the initial premises of the theory, tried to adapt it to real conditions. Thus, it was found that from a certain moment (when the optimal capital structure is reached), with an increase in the share of borrowed capital, the value of the company begins to decline, because. tax savings are offset by rising costs due to the need to maintain a riskier source structure. The modified theory believes:

the presence of a certain share of borrowed capital is beneficial to the company;

excessive use of borrowed capital harms the firm;

Each firm has its own optimal share of debt capital.

2.9Modigliani-Miller dividend theory

This theory proves that the policy of paying dividends does not affect the value of the firm. Like the previous one, it is based on a number of prerequisites. The essence of the theory is that every dollar paid today in the form of dividends reduces the retained earnings that could be invested in new assets, and this decrease should be compensated by issuing shares. New shareholders will need to pay dividends, and these payments reduce the present value of expected dividends for previous shareholders by an amount equal to the amount of dividends received in the current year. Thus, for every dollar of dividends received, shareholders are deprived of future dividends by an equivalent amount. Therefore, shareholders will not care whether they receive a dividend of $1 today or receive a dividend in the future with a present value of $1. Therefore, the dividend policy does not affect the share price.

2.10 Option pricing theory

An option is the right to buy or sell certain assets at a predetermined price within a given period of time. The formalized option pricing model appeared in 1973, when Fisher Black and Myron Scholes published a paper that outlined the well-known Black-Scholes option pricing model. Until recently, option pricing theory was not considered an important part of financial management. However, some financial management decisions can be made based on this theory. For example, when terminating lease agreements, refusing to implement projects.

2.11 Agency theory

It is known that the goal of the firm is to maximize the wealth of its shareholders, which boils down to maximizing the value of the firm. However, the interests of the owners of the company and its management staff may not coincide. The goals of managerial personnel are to maximize salaries, acquire connections, maximize privileges. The fact that the owners of the firm give managers the right to make decisions creates a potential conflict of interest, which is considered in the framework of the theory of agency relations. . The trustees are the shareholders, and the managers are their agents. The founders of the concept of agency relations, formulated in the framework of financial management, are Michael Jensen and William Meckling.

Agency relationships arise when owners hire management personnel and empower them with decision-making power. One of these conflicts is related to the decision: to get a momentary profit or invest it in a promising project. In the context of financial management, there are agency relationships between: shareholders and managers; creditors and shareholders. In order to level possible contradictions between the goals of conflicting groups and, in particular, to limit the possibility of undesirable actions of managers based on their own interests, company owners are forced to bear agency costs.

1. The cost of monitoring the activities of managers. For example, the cost of auditing.

2. The cost of creating an organizational structure that limits the possibility of undesirable behavior of managers. For example, the introduction of external investors into the board.

3. Opportunity costs arising when the conditions set by the shareholders limit the actions of managers that are contrary to the interests of the owners. For example, voting on certain issues at a general meeting.

Agency costs can increase as long as each dollar of their increase provides more than $1 increase in shareholder wealth.

Mechanisms that encourage managers to act in the interests of shareholders:

1. Incentive system based on the performance of the company.

2. Direct intervention of shareholders.

3. Threat of dismissal.

4. The threat of buying up a controlling stake in the company.

2.12 The concept of asymmetric information

The theory of information asymmetry is closely related to the concept of capital market efficiency. Its meaning is that certain categories of persons may have information that is not available to other market participants. In this case, one speaks of the presence of asymmetric information.

The carriers of confidential information are most often managers and individual owners of the company. There are various degrees of asymmetry. Weak asymmetry, when the difference in the awareness of the company's management and outsiders about the company's activities is too small to give advantages to managers. A strong asymmetry occurs when a company's managers are in possession of confidential information that, once released to the public, will significantly change the price of the firm's securities. In most cases, the degree of asymmetry is in the middle between these two extremes.

The influence of asymmetric information on the market was studied by George Akerlof. J. Akerlof considered the phenomenon of information asymmetry on the example of the used car market. In this market, sellers know much more about the quality of cars than buyers. Buyers reasonably wonder why sellers are getting rid of their cars. Let's highlight the main reasons: some change car models every two years, others need a more spacious car, but many used cars are absolutely worthless cars (“lemons”). The average buyer can't tell a good car from a "lemon", so he doesn't want to pay the top price. The probability of buying a lemon is 50%, so buyers are willing to pay 50% of the value of a good used car for any used car. Because buyers drive down the price because they can't tell a good car from a lemon, owners of good cars don't want to sell them. Consequently, the probability of buying a "lemon" will increase and the price will decrease accordingly. Eventually, only lemons will be offered for sale and the market will collapse. Obviously, to improve the operation of the used car market, it is necessary to reduce information asymmetry. The buyer can learn to distinguish a good car from a "lemon", he can show it to an expert. Both of these methods require additional costs, in addition, it cannot be guaranteed that the expert will give an objective assessment. For its part, the car salesman can talk about the condition of his car (the method of "hang noodles on the ears"). It does not require costs, but the buyer cannot assess the truth of the seller's assurances. Therefore, an acceptable way for the seller to take some action that proves the good condition of the machine. For example, a 90-day warranty against breakage. Such an action is called signal. By making it, the seller gives the buyer a signal that he is selling a good car. At the same time, only truthful signals are of value, which cannot be imitated by unscrupulous sellers.

Information asymmetry is an integral part of the capital market, which is highly sensitive to new information. Since the main goal of the manager is to maximize the wealth of shareholders, he is interested in bringing to general information favorable information. For example, by organizing a press conference or issuing a press release. However, this form of signaling is of limited value, since its truth cannot be assessed. A classic example of the dissemination of favorable information is the announcement of the payment of dividends, the publication of financial statements in accordance with international

Conclusion

Financial management, or the management of financial resources and relationships, covers a system of principles, methods, forms and techniques for regulating the market mechanism in the field of finance in order to increase the competitiveness of an economic entity. In a small business, the qualification of an accountant or an economist is sufficient to manage finances, since financial transactions do not go beyond the usual non-cash payments, the basis of which is cash flow. A completely different picture with the finances of big business. In big business, the law of the transition of quantity into quality operates. Big business requires a large flow of capital and, accordingly, a large flow of consumers of products (works, services). With medium and large businesses, the volume and scope of activities of which are measured by significant amounts, financial transactions associated with investments, the movement and increase of capital predominate. To manage the finances of a large business, professionals with special training in the field of financial business are already needed - financial managers (financial directors). Knowing the theory of finance, the basics of management, a financial manager, gaining experience, developing intuition and a sense of the market, becomes a key figure in business. Deep economic changes are taking place in Kyrgyzstan, due to the country's return to the mainstream of the general economic processes of world development. There is a radical restructuring of the former mechanism of economic management, its replacement by market methods of management.

The market economy, with all the variety of its models known to world practice, is characterized by the fact that it is a socially oriented economy, supplemented by state regulation. A huge role, both in the very structure of market relations and in the mechanism of their regulation by the state, is played by finance. They are an integral part of market relations and at the same time an important tool for implementing state policy. That is why the work of a financial manager is more important today than ever.

In this course work, the main concepts of financial management were considered, the study of which allows you to make calculations and make informed management decisions.

List of sources used

1. Blank I. V. "Financial Management" - M .: "Case" - 2005

2. Bocharov V.V. Financial management - St. Petersburg: "Piter" - 2007

Lytnev O.A. Fundamentals of financial management. Tutorial. - Kaliningrad: Publishing House of KGU - 2005

Polyak G.B. "Financial management" - M .: "Delo" - 2004

www.elitarium.ru

Bocharov V.V. Financial management - St. Petersburg: "Piter" - 2007

Ovsiychuk M.F. "Financial management" -M .: "Finance and statistics" - 2003

1. The basic concepts of financial management include

BUT.Time value of money concept

B. Cost of Capital Optimization Concept

B. Concept of risk minimization

D. Concept of discounting

2. The basic concepts of financial management include

I. The concept of the time value of money

II. The concept of information efficiency of the financial market

III. Opportunity cost concept

IV. The concept of asymmetric information

A. only II and II

B. only I, II and III

B. only I, II and IV

G.I, II, IIIAndIV

3. The basic concepts of financial management include

A. The concept of materiality

B. The Concept of Historical Price

B. The concept of temporary unlimited existence of an economic entity

D. The concept of the discounted price of capital

4. Does NOT apply to the basic concepts of financial management

A. The concept of the time value of money

B. Cost of Capital Optimization Concept

B. The concept of opportunity cost

D. The concept of asymmetric information

5. The concept of the time value of money means that

A. funding sources cannot be gratuitous

B. a monetary unit today and a monetary unit of the same nominal value after a certain period of time are not equivalent

B. a monetary unit today and a monetary unit of the same nominal value after a certain period of time in conditions of non-zero inflation are not equivalent

D. money can only be invested at compound interest

6. The concept of trade-off between risk and return means

I. Investor risk aversion

II. Positive risk-reward ratio

III. Directly proportional relationship between risk and return

IV. Investor's expectation of higher returns with higher risks

A. only II

B. II and III only

B. only II, III and IV

G.I, II, IIIAndIV

7. Within the framework of the hypotheses accepted in financial management, the relationship between risk and expected return

A. is always directly proportional

B. is always inversely proportional

V. absent

G. can change its character over time

8. Risk aversion is understood as the requirement

A. decreasing returns while reducing risk

B. increasing returns while reducing risk

B. increasing returns with increasing risk

D. Decreasing returns as risk increases

9. The concept of agency relations in financial management refers to

A. the existence of a gap between the interests of the company's owners and the interests of various groups of hired managers

B. the need to separate the ownership function from the management function in the conditions of a joint-stock form of business organization

B. the presence of several levels of company management

D. relations with resellers working under a commission agreement

10. The essence of the concept of agency relations is

A. in the gap between the function of ownership and the function of management and control, which means that the owners may not delve into the intricacies of managing the organization

B. that organizations, in order to achieve the maximization of the income of owners, need to resort to the help of specialists - agents who monitor financial and economic activities

B. in harmonizing the conflicting goals of various groups of persons (legal and natural) shareholders, employees, contractors, government agencies

D. in harmonizing the conflicting goals of the owners of the company and the state

11. Agency problems

A. inherent mainly in forms of business organization, characterized by full responsibility for obligations arising from economic activity

B. characteristic of the financial relationship of committents and commission agents

B. are the result of a gap between the interests of the company's owners and the interests of hired managers

G. are the result of a gap in the interests of the owners of commercial firms and the state

12. Agency costs

A. arise from the payment of commissions to commission agents

B. due to the gap between the interests of the company's owners and the interests of hired managers

B. arise as a result of investors' aversion to risk

G. can be minimized by hedging risks

13. Agency costs

A. arise as a result of the payment of a commission by the committents to the commission agents

B. can be minimized by hedging risks

B. can be minimized by strictly linking the remuneration of top managers of a joint-stock company to the growth of quotations of its securities

G. should be included in the cost of manufactured products

14. Highlight the main manifestations of conflicts of interest between shareholders (business owners) and managers

I. the use of enterprise resources by managers for the consumption of additional benefits;

II. initiation by management of corporate mergers and acquisitions not dictated by the interests of the owner;

III. granting stock options to managers;

IV. concealment by management of operational information about the activities of enterprises.

A. onlyIAndII

B. only I, II and III

B. only I, II and IV

D. I, II, III and IV

15. Potential conflicts between managers and business owners may be based on

I. lack of full access of shareholders to information about the activities of the company;

II. different taxation of income of owners and managers;

III. different time horizons of interests of owners and managers;

IV. different reaction to risk on the part of owners and managers.

A. only II and II

B. only I and III

B. onlyIIIAndIV

D. I, II, III and IV

16. Regarding the reaction to investment risk of business owners and hired managers, the following statement is considered fair:

A. managers are more likely to accept risky projects compared to owners

B. owners are more likely to accept risky projects compared to managers

C. owners cannot assess the riskiness of projects due to lack of access to commercial information, as a result of which they inadequately respond to risks

D. owners are more sensitive to the risks of investment projects

17. Regarding the time horizons of projects accepted by the company, the following statement is true

A. Managers tend to take on the most long-term projects that guarantee their job retention.

B. owners are inclined to accept the most short-term projects, characterized by quick returns

B. owners tend to accept longer-term projects that maximize the market value of the firm's equity

D. due to information asymmetry, it is impossible to unequivocally formulate the attitude of owners and managers to the time horizons of projects adopted by the company

18. The concept of opportunity cost means

A. the need to measure the costs of the enterprise with industry averages

B. the objective need to use situational modeling in investment analysis

B. the conditionality of any financial or investment decision by the rejection of any alternative option

D. the possibility of implicit costs

19. Opportunity costs (costs) are

A. costs that a firm could incur under an alternative capital structure

B. the cost of issuing equity securities

C. the return that a firm could earn from an alternative use of its real assets

D. income that could be received by the firm with an alternative use of its financial resources

20. The concept of financial management, which must be taken into account when there are various options for using existing production capacities, is

A. The concept of agency agreements

B. The concept of opportunity cost

B. the concept of temporary unlimited functioning of an economic entity

D. the concept of asymmetric information

21. The concept (hypothesis) of the information efficiency of financial markets means that

A. any new information as it becomes available is immediately reflected in the value of financial assets

B. all information about issuers of securities must be disclosed in a timely manner

C. financial asset price statistics are equally available to all market participants

D. all shareholders have equal access to information about the activities of the company, the shareholders of which they are

22. According to the concept of market efficiency

A. with full and free access of market participants to information, the prices of shares and other securities reflect their real value

B. business entities make effective decisions

C. The prosperity of the organization requires the adoption of cost-effective decisions.

D. the activities of market participants are characterized by complete information transparency

23. To achieve the information efficiency of the financial market, it is necessary that

B. investors showed a tendency to more profitable operations

B. it was possible to extract excess profits from operations with securities in the event of a revaluation of the latter

D. there were no transaction costs

24. To achieve the information efficiency of the financial market, it is necessary that

I. all market participants sought to maximize the expected benefit for a given risk

II. windfall profits from securities trading were excluded

III. all market participants were able to borrow at the risk-free rate

IV. market prices of financial assets at each point in time were the best estimate of their real value

A. onlyIAndII

B. only I, II and III

B. only I, II and IV

D. I, II, III and IV

25. The term "efficiency" in relation to the capital market is used

A. in an economic context

B. in a managerial context

B. in the information context

D. in the context of achieving maximum profitability with minimal risks

26. Achieving full information efficiency of the financial market is impossible if

A. all market participants seek to maximize the expected benefit for a given risk

B. Securities windfall excluded

B. Transactions made by an individual individual or legal entity can affect the overall level of prices in the market

D. there are no transaction costs

27. To achieve the information efficiency of the financial market, it is necessary that

A. emerging risks were hedged in a timely manner

B. the market was characterized by a plurality of buyers and sellers

C. investors showed a tendency to more profitable and risky operations

D. it was possible to extract excess profits from operations with securities in the event of a revaluation of the latter

28. Achieving full information efficiency of the financial market is impossible if

A. there is a cost to obtaining information by market participants

B. all market participants seek to maximize the expected benefit for a given risk

B. Transactions made by an individual individual or legal entity cannot affect the general level of prices in the market

G. the market is characterized by a plurality of buyers and sellers

29. The coincidence of the market and intrinsic values of securities is typical for

A. regulated markets

B. asymmetric markets

B. efficient markets

D. capital markets

30. The concept of asymmetric information means that

A. Shareholders have a pre-emptive right to receive information about the activities of the company

B. the creditors of the enterprise have the first right to receive financial information

D. extracting large incomes through operations in the stock market is impossible

31. Information asymmetry of the financial market

I. can serve as a powerful motivator for transactions

II. can act as an obstacle to transactions

III. should be subject to strict control by the state

IV. can be eliminated by hedging investment risks

A. only III

B. onlyI, IIAndIII

B. only I, II and IV

D. I, II, III and IV

32. The main goal of state regulation of the capital market is

A. complete elimination of information asymmetry

B. ensuring equal access of investors to information about issuers

B. providing a guaranteed minimum return to investors

D. providing a guaranteed minimum return to investors

33. The concept of the cost of capital is that

A. each source of funding has its cost

B. capital rises in price over time

B. capital becomes cheaper over time

D. cost of capital affects market conditions

34. The cost of capital of an enterprise shows:

A. the minimum level of return required to maintain the financing of the enterprise

B. the average level of liquidity of the company's assets

B. the average level of solvency of the enterprise at the moment

D. the interest rate at which the company will raise borrowed capital in the future

A. Profit

B. Cash flows

B. Depreciation

D. Discounting

36. The main tasks of financial management include:

I. organization of financial management of the company

II. information support of financial activities

III. preparation of financial statements of the enterprise

IV. conducting an internal audit of the company's activities

A. onlyI

B. only II and II

B. only I, II and IV

D. I, II, III and IV

37. The main tasks of financial management include:

A. information support of financial activities

B. budgeting the sales of the enterprise

B. preparation of the financial statements of the enterprise

D. finding sources of financing for the enterprise

38. Among the activities listed below, select those that are NOT related to the main tasks of financial management:

A. determination of the size and composition of the assets of the enterprise

B. assessment of risk and profitability of certain types of activities

B. conducting an internal audit of the enterprise

D. organization of current financial management

39. Ensuring an increase in the welfare of the owners of a joint-stock company means:

A. increase in the total market value of the shares of this company

B. reduction of unproductive expenses

B. increase in profitability of production

D. Growth in earnings per share

40. The main goal of managing the finances of a commercial organization is:

A. profit maximization

B. leadership in the fight against competitors

B. maximizing the firm's market price

D. sustainable growth in sales volumes

41. The main purpose of managing the finances of a joint stock company is:

I. achieving the highest market value of the company's shares

II. maximizing the wealth of the company's owners

III. maximizing the market value of the firm's equity

IV. maximizing the return on equity of the firm

A. only I

B. only II and II

B. onlyI, IIAndIII

D. I, II, III and IV

42. Profitable activity of a commercial organization

A. is a necessary condition for the growth of its shareholder value

B. is sufficient condition increase in its shareholder value

B. acts as the main goal of managing the finances of this organization

G. is a necessary and sufficient condition for the growth of its shareholder value

43. Maximizing the profit of the enterprise and maximizing its market price, considered as the goals of financial management

A. have different time horizons

B. targeted at different groups of owners

V. identical

G. cannot be achieved simultaneously

44. Maximizing the wealth of shareholders and maximizing the profits of the enterprise, as the goals of financial management, may not coincide due to the influence of the following factors:

I. different time horizons

II. different investment horizons

III. attitude to investment risks

IV. different approaches to assessing the economic efficiency of the company

A. only III

B. only II and II

B. onlyI, IIAndIII

D. I, II, III and IV

45. The object of management in financial management is (are)

A. cash flows, conditions for the movement of financial resources, financial relations between economic entities

B. a special group of people who, through various forms managerial influence carry out purposeful functioning of the object

D. methods and techniques for achieving financial goals in specific conditions

46. The subject of management in financial management is

A. a set of conditions for the implementation of cash flow, the movement of financial resources, financial relations between economic entities

B. a special group of people who manage financial relations

B. a way of influencing the economic process through financial relations

D. specific methods and techniques for achieving goals in specific conditions

47. The longest investment horizons are typical for

A. firm managers

B. firm owners

B. creditors of the firm

G. firm's stakeholders

48. Among the following categories of persons interested in the activities of the company, select the most prone to risky investments

A. firm managers

B. the owners of the firm

B. creditors of the firm

D. firm's stakeholders

49. Among the following categories of persons interested in the activities of the company, select the least inclined to risky investments

A. firm managers

B. the owners of the firm

B. minority shareholders of the firm

D. firm's stakeholders

Content

Introduction

I. The essence of financial management, its functions and principles

1.1 Financial management as a scientific direction and practical field of activity

1.2 Functions and principles of financial management

II. Basic concepts of financial management

2.1 The concept of the time value of money

2.2 The concept of accounting for the inflation factor

2.3 The concept of risk management

2.4 The concept of ideal capital markets

2.5 Market Efficiency Hypothesis

2.6 Discounted cash flow analysis

2.7 Relationship between risk and return

2.8 Modigliani-Miller's theory of capital structure

2.9 Modigliani-Miller dividend theory

2.10 Option pricing theory

2.11 Agency theory

2.12 The concept of asymmetric information

Conclusion

List of sources used

Introduction

The purpose of this course work is to review the basic concepts of financial management, its functions and principles

The object of the study is financial management, and the subject is the concept of financial management and its functions.

I . Financial management as a scientific direction and practical field of activity

Financial management as an independent scientific direction was formed in the early 60s of the XX century. It arose to theoretically substantiate the role of finance at the firm level.

Modifications of this model are used to estimate the value of stocks and bonds.

b) State intervention in the activities of the private sector is expediently minimized.

c) Of the available sources of financing that determine the possibility of development of large corporations, the main ones are profit and capital markets.

d) The internationalization of markets leads to the fact that the general trend in the development of the financial systems of various countries is the desire for integration.

It is generally accepted that the work of Harry Markowitz, the author of portfolio theory, laid the foundation for financial management. They outlined the "methodology for making decisions in the field of investing in financial assets" . Portfolio theory was further developed in the 60s of the 20th century thanks to William Sharp, J. Lintner and J. Mossin, who developed a model for assessing the profitability of financial assets - the Capital Asset Pricing Model (CAPM), which establishes a direct dependence of the profitability of a financial asset (ki) on its market risk (? i). The beta coefficient shows the level of variability in the return of an asset in relation to the movement of the market.

The return on asset i includes 2 components: the return on the risk-free asset (k rf) and the risk premium. The risk premium depends on:

1) market portfolio risk premiums (k m - k rf);

2) the values of the b-coefficient.

Discussions on CAPM continue to the present, as alternative approaches, the theory of arbitrage pricing (APT), the theory of option pricing, and others have been proposed.

“Financial management in a practical plane is a system of relationships that arise in a corporation regarding the attraction and use of financial resources” .

The concept of financial management.

Financial management- management of financial transactions, cash flows, designed to ensure the attraction, receipt of funds and their rational spending in accordance with programs, plans, real needs.

Modern economic dictionary Materials provided by the publishing house "INFRA-M"

Functions of financial management:

Planning. Includes strategic and current financial planning. Drawing up various estimates and budgets for any events.

Participation in pricing policy and sales forecasting.

Assessment of possible changes in the structure (merger, division or absorption of firms).

Providing funding sources. Search for internal and external sources of short- and long-term financing. Choosing the best combination.

Management of financial resources. Cash management on accounts and at the cash desk, in settlements. Management of portfolios of securities. Loan management.

Accounting, control and analysis. Choice of accounting policy. Processing and presentation of accounting information in the form of financial statements. Analysis and interpretation of results. Comparison of reporting data with plans and standards. Internal audit

Financial management is based on a number of interrelated fundamental concepts developed within the theory of finance. The concept (from Latin conceptio - understanding, system) is a certain way of understanding and interpreting a phenomenon. With the help of a concept or a system of concepts, the main point of view on this phenomenon is expressed. In financial management, the following concepts are fundamental: - cash flow, - time value (cost) of cash resources, - compromise between risk and profitability, - cost capital, - efficiency capital market, - information asymmetry, - agency relations, - alternative costs, - temporary unlimited functioning of an economic entity. Here is a brief description of them. One of the main sections of the work of a financial manager is the choice of options for the appropriate investment of funds. In particular, this is done as part of the analysis of investment projects, which is based on quantification related to the project cash flow as a set of cash inflows and outflows generated by this project in the context of the allocated time periods. The concept of cash flow involves: a) identification of cash flow, its duration and type; b) assessment of the factors that determine the magnitude of its elements; c) selection of a discount factor that allows comparing flow elements generated at different points in time; d) an assessment of the risk associated with this flow and how it is accounted for. Time value is an objectively existing characteristic of monetary resources. Its meaning is that the monetary unit available today and the monetary unit expected to be received after some time are not equivalent. This disparity is determined by the action of three main reasons: inflation, the risk of not receiving the expected amount and turnover. Inflation is inherent in almost any economy. The second reason for the difference - the risk of not receiving the expected amount - is also quite obvious. Any contract, according to which cash is expected to be received in the future, has a non-zero probability of being not performed at all or partially performed. The third reason - turnover - is that cash, like any asset, must generate income over time at a rate that seems acceptable to the owner of these funds. In this sense, the amount expected to be received after some time should exceed the same amount that the investor has at the time of the decision by the amount of acceptable income. The concept of trade-off between risk and return is that the receipt of any income in business is most often associated with risk, and the relationship between these two interrelated characteristics is directly proportional: the higher the required or expected return, i.e. the return on invested capital, the higher the degree of risk associated with the possible non-receipt of this profitability; the reverse is also true. Of course, various tasks can be set and solved in financial management, including those of a limiting nature, for example, maximizing profitability or minimizing risk, but most often it is about achieving a reasonable ratio between risk and profitability. The category of risk in financial management is taken into account in various aspects: in application to the evaluation of investment projects, the formation of an investment portfolio, the choice of certain financial instruments, decision-making on the capital structure, the rationale for dividend policy, the assessment of the cost structure, etc. The activity of any company is possible only if there are sources of its financing. They may differ in their economic nature, principles and methods of emergence, methods and terms of mobilization, duration of existence, degree of controllability, attractiveness from the standpoint of certain contractors, etc. However, perhaps the most important characteristic of sources of funds is cost of capital. The meaning of the concept of the cost of capital is that the maintenance of one or another source costs the company differently. Each source of funding has its own cost. The cost of capital shows the minimum level of income required to cover the costs of maintaining a given source and allowing not to be at a loss. In a market economy, most companies are to some extent connected with the capital market. Large companies and organizations act there both as creditors and as investors, the participation of small firms is most often limited to solving short-term investment problems. In any case, decision-making and choice of behavior in the capital market, as well as the activity of transactions, are closely related to market efficiency concept. The logic of such operations is as follows. The volume of transactions for the purchase or sale of securities depends on how closely current prices correspond to intrinsic values. The price depends on many factors, including information. Suppose that a market that was in equilibrium receives new information that a certain company's stock price is undervalued. This will lead to an immediate increase in demand for the shares and the subsequent rise in price to a level corresponding to the intrinsic value of these shares. How quickly information is reflected in prices and is characterized by the level of market efficiency. the degree of market efficiency is characterized by the level of its information saturation and the availability of information to market participants. In an efficient market, any new information as it becomes available is immediately reflected in the prices of shares and other securities. Moreover, this information enters the market randomly, i.e. it is impossible to predict in advance when it will arrive and to what extent it will be useful. There are three forms of market efficiency: - weak, which implies that all information contained in past price changes is fully reflected in current market prices; - moderate, assuming that current market prices reflect not only price changes in the past, but also all other publicly available information; - strong, assuming that all information is reflected in current market prices - publicly available and available only to individuals. The concept of asymmetric information closely related to the concept of capital market efficiency. Its meaning is that certain categories of persons may have information that is not available to all market participants equally. If such a situation takes place, one speaks of the presence of asymmetric information. Most often, managers and individual owners of companies act as carriers of confidential information. This information may be used by them different ways depending on what effect, positive or negative, its publication may have. The concept of agency relations becomes relevant in the conditions of market relations as the forms of business organization become more complex. Agency relations, according to the above theory, include: 1) relations between shareholders and managers; 2) the relationship between creditors and shareholders. Most firms, at least those that determine the economy of the country, to some extent inherent in the gap between the function of ownership and the function of management and control, the meaning of which is that the owners of the company are not at all obliged to delve into in the subtleties of the current management of it. The interests of the owners of the company and its management personnel may not always coincide; this is especially connected with the analysis of alternative solutions, one of which provides momentary profit, and the second is designed for the future. There are also more detailed classifications of conflicting subgroups of managerial workers, each of which gives priority to its group interests. In order to level out to a certain extent possible contradictions between the goals of conflicting groups and, in particular, to limit the possibility of undesirable actions of managers based on their own interests, company owners are forced to bear the so-called agency costs. The existence of such costs is an objective factor, and their value should be taken into account when making financial decisions. One of the key concepts in financial management is opportunity cost concept, or the cost of missed opportunities (opportunity cost). Its meaning is as follows. The adoption of any decision of a financial nature in the vast majority of cases is associated with the rejection of some alternative option. For example, you can transport manufactured products using your own transport, or you can resort to the services of specialized organizations. In this case, the decision is made as a result of comparing alternative costs, most often expressed as relative indicators. The concept of alternative costs plays a very important role in assessing options for possible investment of capital, use production capacity, the choice of policy options for lending to buyers, etc. Alternative costs, also called the price of a chance, or the price of missed opportunities, represent the income that a company could have received if it had preferred a different option for using its resources.

The concept of temporary unlimited functioning of an economic entity assumes that any enterprise after creation will function indefinitely.

This publication is a textbook prepared in accordance with the State Educational Standard in the discipline "Financial Management". The material is presented concisely, but clearly and accessible, which will allow short time study it, as well as successfully prepare and pass an exam or test in this subject. The publication is intended for students of higher and secondary educational institutions.

2. Basic concepts and principles of financial management

1. Financial management is based on a number of interrelated fundamental concepts developed within the framework of the theory of finance. concept (lat. conceptio- understanding, system) is a certain way of understanding and interpreting a phenomenon.

With the help of a concept or a system of concepts, the main point of view on a given phenomenon is expressed, some constructivist frameworks are set that determine the essence and directions of development of this phenomenon.

There are the following main financial management concepts: cash flows; trade-off between risk and return; current value; time value; asymmetric information; opportunity costs; temporary unlimited functioning of an economic entity.

2. Main content cash flow concepts make up the issues of attracting cash flows, identification of cash flow, its duration and type; assessment of the factors that determine the magnitude of its elements; choice of discount factor; assessment of the risk associated with this flow.

The concept of trade-off between risk and return is based on the fact that earning any income in business always involves risk. The relationship between these interrelated characteristics is directly proportional: the higher the required or expected return, the higher the degree of risk associated with the possible non-receipt of this return.

Present value concept describes the patterns of business activity of the enterprise and explains the mechanism of capital increment. Every day, an entrepreneur is forced to manage many transactions for the sale of goods (products), services, investment funds. In this regard, the manager needs to determine how expedient it is to perform these operations, whether they will be effective.

The concept of time value argues that the currency available today is not equivalent to the currency available some time later. This is due to the effect of inflation, the risk of not receiving the expected amount and turnover.

The concept of asymmetric information is based on the fact that certain categories of persons may have information that is inaccessible to all market participants equally. In this case, one speaks of the presence of asymmetric information.

Opportunity cost concept proceeds from the fact that the adoption of any decision of a financial nature in the vast majority of cases is associated with the rejection of some alternative option. The concept of opportunity costs is especially pronounced in the organization of management control systems. Any control system costs certain costs, while the lack of systematic control can lead to much more serious financial losses.

The concept of temporary unlimited functioning of an economic entity claims that a company, once established, will last forever. This concept is, in a certain sense, conditional and is applicable not to a specific enterprise, but to the mechanism of economic development through the creation of independent, competing firms.

3. In contemporary practice management developed the following main principles of financial management:

☝ priority of the strategic goals of the development of the enterprise (organization, commercial structure);

☝ connection with the general enterprise management system;

☝ obligatory allocation of financial and investment decisions in the financial department;

☝ building and maintaining the financial structure of the enterprise;

☝ separate cash flow and profit management;

☝ harmonious combination of profitability of the enterprise and increase in liquidity;

☝ variability and complex nature of the formation of management decisions;

☝ High control dynamism.

4. Based on principle of priority of strategic goals of enterprise development even projects of managerial decisions in the field of financial management of the current period that are highly effective from an economic point of view should be rejected if they conflict with the strategic directions of the enterprise's development and destroy the economic basis for the formation of its own financial resources.

The principle of communication with the overall enterprise management system means that financial management covers issues of all levels of management and is directly related to operational, innovative, strategic, investment, anti-crisis management, personnel management and some other types of functional management.

The principle of mandatory allocation in financial management of financial and investment decisions states that financial solutions work to find financial resources. Investment decisions answer the question of where and how much money should be invested.

The principle of building and observing the financial structure implies that in the activities of the enterprise, structures of a different nature and purpose can be distinguished, but the financial structure of the enterprise is formed by its main activity.

According to the principle of separate management of cash flow and profit cash flow is not equal to profit.

Cash flow is the movement of funds in real time.

Profitability and liquidity are interrelated concepts, but the relationship between them can be inversely proportional: this is how the principle of a harmonious combination of profitability and increasing the liquidity of the enterprise(organization, commercial structure).

5. All activities of the enterprise are the result of making decisions that are different in nature and goals, but interconnected in content, in the field of the formation, distribution and use of financial resources and the organization of the enterprise's cash flow. These decisions are closely interrelated and have a direct or indirect impact on its financial results. This is the action the principle of variability and the complex nature of the formation of managerial decisions.

management, according to principle of dynamism should be appropriate and efficient. Management decisions must be made in a short time, since the external and internal environment of the enterprise is constantly changing.