bmcf01 - M.A Financial and Managerial Accounting...

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9 M.A. Financial and Managerial Accounting Introduction to International Corporate Finance Other Readings Brealey / Myers
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10 1 Finance and the Financial Manager INTRODUCTION This chapter, like the customary introductory chapter in most textbooks, gives a brief introduction to the topics covered by the book and provides an overview of the book. The chapter is organized in six sections and covers the following topics succinctly. - Organizational forms for business and the advantages and disadvantages of the corporate form - The role and the organizational position of the financial manager - Separation of ownership and management - Financial markets and financial institutions - Overview of the book KEY CONCEPTS IN THE CHAPTER Corporate and Other Forms of Business Organization: Common organizational forms for businesses include the s ole proprietorship the typical form for a small business owned and managed by a single individual; the partnerships , and corporations . As the business grows and becomes larger, they tend to be organized as corporations with a large number of stockholders. Most businesses evolve from smaller privately held corporations to large public corporations. The corporate form enjoys the advantages of limited liability for the owners (stockholders) and the ability to attract large amounts of capital. Professional managers are hired to manage today’s typical corporations. This separation of ownership and management gives the firm permanence. Corporations have distinct legal identity and are governed by the articles of incorporation . Corporations enjoy considerable flexibility of operation. The disadvantages of the corporate form include costly legal and accounting set-up and double taxation of earnings. Financial Manager’s Role: Corporations use different real assets to run their business and finance the acquisition of these assets partly by raising finances through issue of financial securities, which are in the financial markets (figure 1.1). The financial manager’s primary role is deciding which assets to invest in and how to finance them . Thus the two types of decisions the financial manager is called upon to make are investing decisions (capital budgeting) and financing decisions . Corporate finance is primarily concerned with these decisions.
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11 Most firms will have other managers in charge of marketing, production, and other functions who work with the finan cial manager(s) in managing a corporation’s operations. Today corporations operate in a global market place with offices and factories located in many countries. Financial markets are also global and companies often raise financing from investors located in many different countries. Throughout the book, the term financial manager is used in a generic sense meaning anyone who deals with investment and/or financing decisions for a business. Except in very small businesses, the role is typically split into separate positions with the treasurer dealing with cash
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