Chapter 1 Handout - Chapter 1 Introduction to Financial...

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Unformatted text preview: Chapter 1 Introduction to Financial Management CORPOHAYE FINANCE l .n warm. “we: . .1: a. :u m.m..ii.iv mam... in m "w. «.42.; Basic Areas Of Finance Corporate finance Investments Financial institutions International finance Investments - Work with financial assets such as stocks and bonds - Value of financial assets, risk versus retum, and asset allocation - Job opportunities g - Stockbroker or financial advisor “ — Portfolio manager — Security analyst Financial Institutions - Companies that specialize in financial matters — Banks — commercial and investment. credit unions. savings and loans - Insurance companies — Brokerage firms - Job opportunities é - www.careers-in-business.com lntemational Finance - This is an area of specialization within each of the areas discussed so far - It may allow you to work in other countries or at least travel on a regular basis - Need to be familiar with exchange rates and political risk - Need to understand the wstoms of other countries; speaking a foreign language fluently is also helpful Why Study Finance? - Marketing - Budgets. marketing research. marketing financial products - Accounting - Dual accounting and finance function. preparation of financial statements - Management — Strategic thinking.job performance, profitability - Personal finance — Budgeting. retirement planning. college planning. day-to-day cash flow issues It Business Finance - Some important questions that are answered using finance — What long—term investments should the firm take on? - Where will we get the long-term financing to pay for the investments? — How will we manage the everyday financial activities of the firm? Financial Manager - Finano'al managers try to answer some. or all. of these questions - The top financial manager within a firm is usually the Chief Financial Officer (CFO) — Treasurer — oversees cash management. credit management. capital expenditures. and financial planning — Controller — oversees taxes. cost accounting. financial accounting. and data processing Financial Management Decisions - Capital budgeting — What Iong-tenn investments or projects should the business take on? - Capital stmcture — How should we pay fer our assets? — Should we use debt or equity? - Working capital management - How do we manage the day-to—day finances of the firm? Forms of Business Organization - Three major forms in the United States — Sole proprietorship - Partnership - General - - Limited 64% - Corporation - S-Corp - Limited liability company in Sole Proprietorship 1- - Advantages - Disadvantages — Easiest to start — Limited to life of owner — Least regulated — Eq uity capital limited to —Single owner keeps all °w"°’ s mna' of the profits Weahh _ Tam, once as — Unlimited liability personal income - Difficult to sell ownership interest Partnership - Advantages - Disadvantages — Two or more owners — Unlimited liability - More capital available ' Genml “imam-9 — Relatively easy to ' “m'm "memo Stan - Partnership dissotves when one partner dies or wishes to sell — Difi'tcult to transfer ownership — Income taxed once as personal income 11 1. Corporation - Advantages - Disadvantages — Limited liability - Separation of — Unlimited life ownefShip and — Separation of yggngem (agency fififgfiefld - Double taxation _ Transfer of ownership gmgmsg gag” '8 a?” l , then dividends taxed at — Easner to raise capital parsonal ram while dividends paid are not tax deductible) n Goal Of Financial Management - What should be the goal of a corporation? — Maximize profit? — Minimize costs? - Maximize market share? — Provide the best product/service? - Maximize the wrrent value of the compaan stock! M ...
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This note was uploaded on 04/05/2011 for the course FIN 350 taught by Professor Debruinne during the Winter '11 term at Grand Valley State University.

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Chapter 1 Handout - Chapter 1 Introduction to Financial...

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