IM Ch01 - CHAPTER 1 FOUNDATIONS FOCUS Chapter 1 is designed...

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CHAPTER 1 FOUNDATIONS FOCUS Chapter 1 is designed to provide an overview of finance. The emphasis is on breadth, lightly touching a number of topics without going into a great deal of detail. The chapter provides a foundation on which to base the more advanced work of later chapters. TEACHING OBJECTIVES Students should gain an understanding of the following concepts: 1. the basic nature of financial assets (securities) and the organization and operation of financial markets; 2. the role and responsibility of financial management in corporations; 3. the relationships between finance and accounting and between finance and economics, along with the importance of cash flow in finance; 4. the financial implications of the proprietorship and corporate forms of business organization including the true role of limited liability; 5. the need for a top level managerial goal and why maximizing shareholder wealth works; 6. stakeholder groups and conflicts of interest especially between management and stockholders. OUTLINE I. AN OVERVIEW OF FINANCE A. Financial Assets Distinguish financial assets from real assets and establish the basis of their value in future cash flows. B. Financial Markets Define financial markets as networks within which financial assets are traded. Describe the purpose of markets as transferring funds from investors to companies. C. Raising Money Corporations raise money in financial markets to finance projects. D. Financial Management The role of financial management within companies including Treasury and Control functions and the responsibilities associated with each. E. The Price of Securities - A Link Between the Firm and the Market The market price of securities provides a link between the activities of management and the players in financial markets. II. FINANCE AND ACCOUNTING The relationship between finance and accounting conceptually and in the typical organization. A. The Importance of Cash Flow Cash is king in finance. How that perception differs from the accounting viewpoint. B. The Language of Finance Financial people need to know at least a little accounting because it's the system in which businesses "keep score." 1
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Chapter 1 III. FINANCIAL THEORY - THE RELATIONSHIP WITH ECONOMICS A. Financial theory distinguished from everyday practice. B. The roots of financial theory in economics. IV. FORMS OF BUSINESS ORGANIZATION AND THEIR FINANCIAL IMPACT The forms of business organization from the perspective of an entrepreneur starting and then expanding a business. A. The Proprietorship Form Easy to start, taxed just once. However, raising money for expansion is tough because no one wants to lend to new small businesses. B. The Corporate Form Double taxation, but now the business can sell stock, which can give investors an incentive to put money into a new small business. C.
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This note was uploaded on 02/22/2010 for the course FINANCIAL bfn 201 taught by Professor Kim during the Spring '10 term at University of Massachusetts Boston.

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IM Ch01 - CHAPTER 1 FOUNDATIONS FOCUS Chapter 1 is designed...

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