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PRINCIPLES OF
FINANCE
I.K. Gunarta
Slide Contents
¨ Learning Objectives
¨ Introduction
• What’s it worth?
n Difficult to judge in the real world.
n Depends on forecasts, formulas,
and common sense.
MERCK GENERAL
VS MOTORS
At the end of 2003, the Valued at $30 billion at the
total market value of end of 2003; but over the
Merck, a large years, GM's investors had
pharmaceutical company, actually invested $85 billion.
was $103 billion.
Over the life of the
business, Merck's investors
had invested about $30
billion in the business.
Goal of the Firm?
Memaksimumkan kekayaan
pemegang saham dengan cara
memaksimumkan harga saham
perusahaan.
Profit Maximization
Ø Stresses the efficient use of capital resources
Ø Not specific to time frame for profits to be
measured
Ø Ignores uncertainty and timing
Major Functions in Finance
(2) (1)
Financial
Firm’s (4a) Financial
Operations manager Market
(3) (4b)
Pasar sekunder
Korporasi
Surat-surat berharga (Sekuritas)
melakukan
investasi
dalam asset Investasi kembali
yang dapat Surat-surat
menghasilkan berharga yang
diperdagangkan
imbal hasil Aliran kas operasi Modal dibagi ke investor
antar investor
Pajak
Pemerintah
Why Study Finance?
¨ Knowledge of financial tools is critical to
making good decisions in both corporate
world and personal lives.
¤ How
will Krakatau Steel’s (Indonesian
biggest steel industry) decision to invest
$2.4 billion to produce the steel require the
expertise of different disiplines within the
business school?
THREE TYPES OF BUSINESS
ORGANIZATIONS
Business Organizational Forms
Business
Forms
Sole
Partnerships
Proprietorships Corporations
Sole Proprietorship
¨ It is a business owned by a single
individual who is entitled to all of the
firm s profits and is responsible for all of
the firm s debt.
¨ Disadvantages:
¤ Personally liable for the business debts
¤ The business ceases on the death of the
proprietor
¤ Harder to raise money
Partnership
A general partnership is an association
of two or more persons who come
together as co-owners for the purpose of
operating a business for profit.
Partnership (cont.)
¨ Advantages:
¤ Relativelyeasy to start
¤ Taxed at the personal tax rate
¨ Disadvantages:
¤ Partners jointly share unlimited liability
¤ It is not always easy to transfer ownership
Partnership (cont.)
¨ In limited partnerships, there are two
classes of partners: general and limited.
¨ Disadvantages
¤ Greater regulation
¤ Double taxation of dividends
Limited Liability Company
(LLC)
Limited liability company (LLC)
combines the tax benefits of a partnership
(no double taxation of earnings) with the
limited liability benefit of corporation (the
owner s liability is limited to what they
invest).
Characteristics of Different Forms
of Business
How the Finance Area Fits into
a Corporation
THE GOAL OF THE FINANCIAL
MANAGER
The Goal of the Financial Manager
¤ People
¤ Portfolio
¤ Partners
¤ Planet
Corporate Mission
¨ While managers have to cater to all the
stakeholders (such as consumers,
employees, suppliers etc.), they need to
pay particular attention to the shareholders.
¨ Corporation
¨ Debt
¨ Dividends
¨ Equity
Key Terms (cont.)
¨ Financial markets
¨ General partner
¨ Shares
¨ Stockholders