Finance - Finance science and art of managing money How...

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Finance - science and art of managing money How much of their earnings they spend How much they save How they invest their savings Career Opportunities in finance Financial services- concerned with the design and delivery of advice and financial products to individuals, businesses and government Managerial Finance- concerned with the duties of the financial manager in a business Financial Manager - manages the financial affairs of all types of businesses Read Page 57 (Focus on Practice) Legal Forms of business Organization Sole Proprietorship - business owned by one person and operated for his or her own profit; unlimited liability Unlimited liability - giving the creditors the right to make claims against the owner’s personal assets to recover debts owned by the business; applies in sole proprietorship and general partnership Partnership - owned by two or more people and operated for a profit Articles of partnership - written contract used to formally establish a business partnership Corporation - entity created by law Stockholders - owners of corporation, whose owner or equity, takes the form either common stock or preferred stock Limited liability - legal provision that limits stockholders’ liability for a corporation’s debt to the amount they invested by purchasing stock Common stock - purest and most basic form of corporate ownership Dividends - periodic distribution of cash to the stockholder of a firm Board of directors - responsible for approving strategic goals and plans, setting general policy, guiding corporate affairs and approving major expenditures President or Chief Executive Officer (CEO)- responsible for managing the firm’s day to day operations and carrying out the policies establish by BOD Read Page 59 (table 1.1) Other Limited Liability Organization Limited partnership (LP) S Corporation (S corp) Limited Liability Company (LLC) Limited Liability Partnership (LLP) Goals of the firm Maximize shareholder wealth Maximize profit? Earnings per share (EPS )- amount earned during the period on behalf of each outstanding share of common stock totalearningsavailable numberof shares of CSoutstanding Timing Cash flows Risk - chance that actual outcomes may differ from those expected Risk averse - requiring compensation to bear risk Stakeholders - groups such as E, C, S, C, O and others who have a direct economic link to the firm Role of business ethics Business ethics - standards of conduct or moral judgment that apply to persons engaged in business Ethical behavior is therefore viewed as necessary for achieving the firm’s goal of owner wealth and maximizations Managerial Finance Function - considering its role within the organization, its relationship to economics and accounting and the primary activities of the financial managers Organization of the finance function Treasurer - firm’s chief financial manager, who manages the firm’s cash, oversees its pension plans and manages key risk Controller

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