1-0 CHAPTER 1 An Overview of Financial Management Role of financial management Career opportunities Forms of business organization Goals of the corporation Issues of the new millenium ■ Agency relationships Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 0 Copyright © 2002 by Harcourt, Inc. All rights reserved. CHAPTER 1 An Overview of Financial Management ◼Role of financial management ◼Career opportunities ◼Forms of business organization ◼Goals of the corporation ◼Issues of the new millenium ◼Agency relationships
What three questions does financial management seek to answer? What causes a company to have a particular stock value? How can managers make choices that add value to their companies? How can managers ensure that their companies don't run out of cash while executing their plans? Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 1 Copyright © 2002 by Harcourt, Inc. All rights reserved. ◼What causes a company to have a particular stock value? ◼How can managers make choices that add value to their companies? ◼How can managers ensure that their companies don’t run out of cash while executing their plans? What three questions does financial management seek to answer?
1-2 Career Opportunities in Finance Institutions and capital markets ■ Investments ■ Financial management Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 2 Copyright © 2002 by Harcourt, Inc. All rights reserved. ◼Institutions and capital markets ◼Investments ◼Financial management Career Opportunities in Finance
1-3 Alternative Forms of Business Organization ■ Sole proprietorship ■ Partnership ■ Corporation Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 3 Copyright © 2002 by Harcourt, Inc. All rights reserved. ◼Sole proprietorship ◼Partnership ◼Corporation Alternative Forms of Business Organization
1-4 Sole Proprietorship ■ Advantages: ● Ease of formation O Subject to few regulations O No corporate income taxes ■ Disadvantages: ● Limited life ● Unlimited liability DIfficult to raise capital Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 4 Copyright © 2002 by Harcourt, Inc. All rights reserved. ◼Advantages: ⚫Ease of formation ⚫Subject to few regulations ⚫No corporate income taxes ◼Disadvantages: ⚫Limited life ⚫Unlimited liability ⚫Difficult to raise capital Sole Proprietorship
1-5 Partnership A partnership has roughly the same advantages and disadvantages as a sole proprietorship Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 5 Copyright © 2002 by Harcourt, Inc. All rights reserved. ◼A partnership has roughly the same advantages and disadvantages as a sole proprietorship. Partnership
1-6 Corporation ■ Advantages: UNlimited life O Easy transfer of ownership LImited liability PEase of raising capital Disadvantages ●Doub| e taxation COst of set-up and report filing Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 6 Copyright © 2002 by Harcourt, Inc. All rights reserved. ◼Advantages: ⚫Unlimited life ⚫Easy transfer of ownership ⚫Limited liability ⚫Ease of raising capital ◼Disadvantages: ⚫Double taxation ⚫Cost of set-up and report filing Corporation
1-7 Goals of the Corporation The primary goal is shareholder wealth maximization which translates to maximizing stock price sHould firms behave ethically? YES! oDo firms have any responsibilities to society at large? YES! Shareholders are also members of society Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 7 Copyright © 2002 by Harcourt, Inc. All rights reserved. ◼The primary goal is shareholder wealth maximization, which translates to maximizing stock price. ⚫Should firms behave ethically? YES! ⚫Do firms have any responsibilities to society at large? YES! Shareholders are also members of society. Goals of the Corporation
8 Is maximizing stock price good for society, employees, and customers? Employment growth is higher in firms that try to maximize stock price. On average, employment goes up in Firms that make managers into owners(such as LBo firms) Firms that were owned by the government but that have been sold to private investors Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 8 Copyright © 2002 by Harcourt, Inc. All rights reserved. Is maximizing stock price good for society, employees, and customers? ◼Employment growth is higher in firms that try to maximize stock price. On average, employment goes up in: ⚫firms that make managers into owners (such as LBO firms) ⚫firms that were owned by the government but that have been sold to private investors
1-9 Consumer welfare is higher in capitalist free market economies than in communist or socialist economies Fortune lists the most admired firms In addition to high stock returns, these firms have: High quality from customers'view Employees who like working there Copy right C 2002 by Harcourt, Inc. All rights reserved
1 - 9 Copyright © 2002 by Harcourt, Inc. All rights reserved. ◼Consumer welfare is higher in capitalist free market economies than in communist or socialist economies. ◼Fortune lists the most admired firms. In addition to high stock returns, these firms have: ⚫high quality from customers’ view ⚫employees who like working there
