MBAs in Financial Management

MBAs who choose to go into financial management perform two major functions:

·         Business Investment Decisions-What assets should the firm own? In what projects should the business invest? There are three basic decision categories:

a)      Accept or reject a single investment proposal

b)      Choose one competing investment over another

c)       Capital Rationing-with a limited investment pool, capital rationing tells which projects among many should be chosen

               The two major tools that MBAS use are:

1.       Payback= Number of years to recover initial investment

2.       NPV=Cash to be received(1+discount rate)

               The five basic ways of financing a company’s needs:

1.       Receive credit from suppliers

2.       Obtain lease financing

3.       Obtain bank loans

4.       Issue bonds

5.       Issue stock

·         Financing Decisions-How should those investments be paid for?

The theoretical basis for financial analysis is the risk/reward equation, in which higher risks are associated with higher returns. Returns are calculated by determining the amount and the timing of cash flows.

The guiding principle of financial management is to maximize the firms’ value by financing cash needs at the least cost possible, at a level of risk that management can live with.