Financial Management

Financial Management - Chapter 1: Overview of Corporate...

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Chapter 1: Overview of Corporate Finance Summary: What is Finance? At the macro level, finance is the study of financial institutions and financial markets and how they operate within the financial system in both the Canadian and global economies. At the micro level, finance is the study of financial planning, asset management, and fund raising for businesses and financial institutions. Financial management can be described in brief using the following balance sheet. What is Finance? A well-developed financial system is a hallmark and essential characteristic of any modern developed nation. Financial markets, financial intermediaries, and financial management are the important components. Financial markets and financial intermediaries facilitate the flow of funds from borrowers to savers. Financial management involves the efficient use of financial resources in the production of goods. Areas of Specialization in Finance Financial Markets o Markets of users and savers of funds. Financial Services o Design and delivery of financial advice and products to individuals, businesses, government. Managerial Finance o Financial management of business firms. Areas of Employment in Finance Financial Analyst Capital budgeting analyst/manager Project finance manager Cash manager Credit analyst/manager Pension fund manager Basic Forms of Business Organization Sole Proprietorship o Owned by one person, operated for personal profit. Partnerships o Owned by two or more people, operated for joint profit. 1
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Chapter 1: Overview of Corporate Finance Corporations o “Legal entity”, owned by individuals, operated for joint profit. Sole Proprietorship STRENGTHS: o Low organizational cost o Income taxed once as personal income o Independence o Secrecy o Ease of dissolution WEAKNESSES: o Unlimited liability o Limited funding o Proprietor must be all o Difficult to develop staff career opportunities o Lack of continuity on death of proprietor Partnerships STRENGTHS: o Improved funding sources o Increased managerial talent o Income split by partnership contract, taxed as personal income WEAKNESSES: o Unlimited liability to all partners o Partnership dissolved upon death of partner o Difficult to liquidate or transfer ownership Corporations STRENGTHS: o Owners’ liability limited o Large capitalization possible, greater funding o Ownership readily transferable o Indefinite life o Professional management WEAKNESSES: o Higher tax rates o Expensive organization o Greater government regulation o When publicly traded, lacks secrecy 2
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Chapter 1: Overview of Corporate Finance Legal Forms Sole Proprietorship Partnership Corporation Income Trust Strength s - Owner receives all profits (and losses) - Low organizational costs - Income included and taxed on proprietor’s personal tax return - Can raise more funds than a sole proprietorship - Borrowing power enhanced by more owners - More available
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This note was uploaded on 11/15/2009 for the course BBA ADMN3116 taught by Professor G.jensen during the Fall '09 term at Laurentian.

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Financial Management - Chapter 1: Overview of Corporate...

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