Financial Management 1

9 MARCH 2015

Introduction
Instructor Introduction
Name : Johan Yanto SE MM
Education History
Bachelor of Economics from the Tarumanagara
University (1986 1990)
Masters of Management from the University of
Indonesia (1993 1995)
Profesional Experience :
Arthur Andersen Co (1990 1995) as Senior
Tax Consultant
PriceWaterhouse Cooper (1995 1997) as
2
Assistant Manager

Instructor
Introduction
Profesional Experience (continued)
PT Merck Sharp & Dohme Indonesia (1997 2000) as Financial
Controller
A subsidiary of Merck & Co, an American pharmaceutical company and
one of the largest pharmaceutical companies in the world. Merck
headquarters is located in Whitehouse Station, New Jersey

PT. Pancaprima Ekabrothers (2000 2003) as Financial

Controller
PT. Pancaprima Ekabrothers is Joint-Venture company between Liwaco
company incorporated in Hong Kong and Pan Brother Group.

Baramulti Group (2003 2007) as Group Financial Controller in

holding company and Finance Director in subsidiary company
Baramulti has several business lines such as coal mining, coal trading,
mining services and shipping company. Baramulti has several mining
3
operation companies; two in South Kalimantan, three in East Kalimantan,
and six company in South Sumatera.

Instructor Introduction
Profesional Experience (continued)
PT SMART Tbk / Sinarmas Group (2007 2009) as Vice
President /Assistant to CEO
PT SMART Tbk is one of the largest, publicly-listed, integrated palmbased consumer companies in Indonesia. PT SMART Tbk is part of
Sinarmas Group owned by the Widjaja Family.

M.P. Evans Group PLC (2009 2011) as Finance Director for

Indonesian operation.
M.P. Evans Group PLC is a British company incorporated in England &
Wales and listed on the London Stock Exchanges Alternative Investment
Market (AIM). The Group's assets consist of oil-palm plantations (both
majority and minority held) in Indonesia and Malaysia, property4
development in Malaysia and beef-cattle business in Australia.

Instructor Introduction
Profesional Experience (continued)
Samko Timber Ltd ( 2011 Feb 2015) as Chief Financial
Officer.
Samko Timber is a joint venture company between Sampoerna Group
and Sunarko Group. It is listed on SGX-Mainboard since February 2008.
Samko is majority-owned by two Indonesian families. The Putera
Sampoerna family owns about 40.7% while the Sunarko family owns
about 36.5%. Hence, the name Samko. Public hold about 22.8%

Sampoerna Group ( Mar 2015 Now) as Advisor

Prasetiya Mulya ( Mar 2015 Now) as part time lecturer

Introduction
Student Introduction

Name
Nick Name
Hobby
What do you expect to get from
this course?
Future Goals
Best quotes
6

Tell me why?
I don't like Mondays.
Tell me why?
I don't like Mondays.
Tell me why?
I don't like Mondays.
Song by :
THE BOOMTOWN
RATS

1. Banyak dari kita yang melihat kuliah hanya sebagai setumpuk tugas
yang harus diselesaikan
2. Dengan Mindset seperti itu mereka tidak akan mendapatkan
Kebahagiaan dalam kuliah.
3. Anda harus mengubah mindset dan menjadikan anda penuh
semangat dalam kuliah untuk mendapatkan Kebahagiaan
4. Kebahagiaan dalam kuliah akan mendekatkan Anda kepada
kesuksesan baik dalam kuliah maupun bekerja atau bisnis nanti

Chapter 1
An Introduction to
Corporate Finance
Introduction to
Corporate Finance
McGrawHill/Irwin

Copyright2012byTheMcGrawHillCompanies,Inc.Allrightsreserved.

Key Concepts and Skills

Know what the Corporate Finance is
Know the role of the financial manager in the
corporation
Know what is the goal of financial management
Understand the different forms of business
organization
Understand the conflicts of interest that can
arise between owners and managers
Take a brief look at the various types of
financial markets
1-11

Chapter Outline
1.1 Corporate Finance and the Financial
Manager
1.2 Forms of Business Organization
1.3 The Goal of Financial Management
1.4 The Agency Problem and Control of
the Corporation
1.5 Financial Markets and the
Corporation
1-12

What Is Corporate Finance?

business finance is just another name for corporate finance

Corporate finance provides answers

to some important questions:
What long-term investments should the
firm take on?
Where will the firm get the long-term
financing to pay for the investments?
How will the firm manage its everyday
financial activities? Such as collection
from customers and paying suppliers
1-13

The Financial Manager

Financial managers try to answer some or all
of these questions
The top financial manager within a firm is
usually the Chief Financial Officer (CFO)
Treasurer oversees cash management, credit
management, capital expenditures, and financial
planning
Controller oversees taxes, cost accounting,
financial accounting and data processing

1-14

Financial Management Decisions

Capital budgeting
The Process of planning and managing a firms long-term
investment is called Capital Budgeting

What long-term investments or projects should the

business take on?
Identify investment opportunity that are worth more than
they cost to acquire. This means that the value of the cash
flow generated by an asset exceed the cost of that asset
Examples : what product or service will the firm sell, open
another plant, should we replace old equipment with newer,
more advanced equipment, what type of accounting system
to purchase etc.

1-15

Financial Management Decisions

Capital structure
How much should the firm borrow to pay for its
assets?

What is the best mixture of debt and equity?

The least expensive sources of funds?
How and where to raise the money

1-16

Financial Management Decisions

Working capital management
How do we manage the day-to-day finances
of the firm?
Examples :
How much cash should we keep on hand?
Should be sell on credit? If yes, who should we
sell to on credit, what is the term of payment?
How much inventory should we carry? 30 days?
Just in time?
How will we obtain any needed short-term
financing?
When should we pay our suppliers, etc.

1-17

Forms of Business Organization

Three major forms
Sole Proprietorship
Partnership
General
Limited

Corporation
Limited Liability Company
(UU PT No 40 tahun 2007)
Limited Liability Partnerships
1-18

Sole Proprietorship
Advantages
Easiest to start
Least regulated
Single owner keeps
all the profits
Taxed once as
personal income

Disadvantages
Limited to life of
owner
Equity capital
limited to owners
personal wealth
Unlimited liability
Difficult to sell
ownership interest

1-19

Partnership
Advantages
Two or more
owners
More capital
available
Relatively easy to
start
Income taxed once
as personal income

Disadvantages
Unlimited liability
General partnership
Limited partnership

Partnership
dissolves when one
partner dies or
wishes to sell
Difficult to transfer
ownership
1-20

Corporation
Advantages
Limited liability
Unlimited life
Separation of
ownership and
management
Transfer of
ownership is easy
Easier to raise
capital

Disadvantages
Separation of
ownership and
management
May involve double
taxation in some
countries (income
taxed at the
corporate rate and
then dividends taxed
at the personal rate)
1-21

Summary of
3 Business Forms

Liquidity refer to the speed and ease with which an asset can be converted to cash

1-22

Goal of Financial Management

What should be the goal of a corporation?
Possible Goals
Relates to profitability : Maximize profits? Minimize
costs? Maximize market share? Maximize the
current value of the companys stock?
Relates to controlling Risk : Bankruptcy avoidance,
stability, survive
1-23

Maximizing Shareholders Wealth =

Maximizing the market value of the existing
owner equity
Why is this a valid goal?

Decisions are made in shareholders

best interest
Considers cash flows not profits
Incorporates time dimension
Does not consider profitability but
also risk

The Agency Problem

Agency relationship
The relationship between stockholder
and management
The relationship exists when a principal
hires an agent to represent his/her
interests
Stockholders (principals) hire managers
(agents) to run the company

Agency problem
Conflict of interest between principal and
agent
Agent may not work in the best interest of the
1-25
principal

Management Goals
Management goals may be different
from shareholders goals
Management may be more interested in:
Consuming expensive perks
Its own survival
Its independence

Management may focus on increased

growth and size rather than increasing
shareholders wealth

Agency Costs
Costs due to the conflict of interest between
shareholders and management
Direct
Corporate expenditure that benefits management but
costs shareholders,
e.g. country club
membership
Costs to monitor management actions,
e.g.
auditor costs

Indirect
Lost opportunity due to management forgoing
profitable but risky projects for fear of losing job if
project fails
1-27

Do Managers act in the best interest of

stockholder?
It depends on 2 factors :
How closely are management goals aligned with
stockholders goals? This question relates to the
way manager are compensated.
Can managers be replaced if they do not pursue
stockholders goals? This question relates to the
control of the firm.

1-28

Managing Managers
Managerial compensation
Incentives can be used to align management and
stockholder interests
The incentives need to be structured carefully to make
sure that they achieve their goal

Corporate control
AGM/ RUPS, EGM/RUPSLB
Proxy fight mechanism by unhappy stockholder to act to
replace existing management.

The threat of a takeover may result in better

management

Other stakeholders
E.g : employees, customers, suppliers, government
etc.
1-29

Financial Markets
Primary market
A market where the firm sells its securities
to public for the first time

Secondary markets
A market in which the securities issued by
firms are traded
Listed securities trade in an organized
exchange, e.g. the stock market (NYSE)
Over-the-counter securities are bought from or
sold to a dealer
1-30

Financial Markets
Primary market
Public offerings selling securities to the
general public
Private placement a negotiated sale
involving a specific buyer.

Secondary markets
Auction market broker & Agent match
buyer & seller. They do not own the
commodity. = A Real estate agent.
Dealer market Dealer buy and sell for
themselves at their own risk. = Car Dealer
1-31

Quick Quiz
What are the three types of financial
management decisions?
What are the three major forms of business
organization?
What is the goal of financial management?
What are agency problems and why do they
exist within a corporation?
What is the difference between a primary
market and a secondary market?

1-32

So Thats

An Introduction to Corporate
Finance

33

End of Chapter 1. Continue to

Chapter 2

2-34

You Are What You Think

(Anda adalah apa yang anda pikirkan)
"Attitude is everything." It's what makes the difference between those who
succeed and those who fail.
Use self-talk to make positive changes in our attitudes and beliefs.
Self-talk can be private speech, thoughts, or external speech, all of which
shape emotions and behavior for good or bad.
Self-Talk, will help us overcome stress, guilt, depression, anxiety, and
anger;
Apa yang anda fikir, itulah diri anda. Jadi percayalah kepada kekuatan dan
usaha anda. Bermimpilah yang besar. InsyaAllah anda akan
memperolehnya.
Self-talk thru song

2-35

AKU BISA
Kadang ku takut dan gugup
Dan ku merasa ooh..ohh tak
sanggup
Melihat tantangan di sekitarku
Aku merasa tak mampu
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Namun ku tak mau menyerah

Aku tak ingin berputus asa
Dengan gagah brani aku
melangkah
Dan ternyata aku bisa

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Aku bisa aku pasti bisa

Ku harus terus berusaha
Bila ku gagal tak mengapa
Setidaknya ku tlah mencoba

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Ku tak mau berputus asa
Coba terus coba sampai
ku bisa
Aku pasti bisa
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