FIN 301 Notes - FINANCE301 Chapter1:Introduction...

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FINANCE 301 16:57 Chapter 1: Introduction Finance is managing money Subcategories: corporate, business, investments, banking (financial institutions) Assets=Liabilities + Equity Investments=Financing Financial Management-decisions about assets/capital (investments, financing) Capital Markets—interest rates, stocks and bonds, bring together savers and  demanders Investments—security analysis, portfolio analysis Forms of Organizations Sole Proprietorship—one person No separation between individual and business Advantages: easy to form, few regulations, taxed once at individual rate Disadvantages: unlimited liability, difficulty in transferring ownership General Partnership—two or more persons doing business Like sole proprietorship except its more than one person Advantages: same as S.P Disadvantages: same as S.P; every partner is jointly and severally liable Corporation Recognized as its own separate legal entity Advantages: limited liability Disadvantages: difficult to form, double taxation
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Once at corporate level, and another time at individual level when distributed to owners S Corporation Useful for a fairly small business <75 share holders Maximum number of stockholders Advantages of corporation, but income of business is distributed to owners and they are  taxed at individual level LLC-Limited Liability Corporation LLP-Limited Liability Partnership Law firms, accounting firms Financial Goal of Firm Maximize value of stock (owners) Long Run concept—the value of any asset is the present value of its future cash flows  discounted at the required rate of return; the asset’s economic, or intrinsic value Constraints Tend to use market price for the asset’s economic value Stock Prices and Shareholder Value Value: the value of any asset is the present value of the future cash flows, discounted at  the required rate of return, which deflects the risk of the cash flows Market value vs. Intrinsic value Business Ethics CO’s attitude and conduct toward employees, customers, stockholders, and community Recent Trends Sarbanes Oxley Act
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easier for small shareholders to be heard Globalization IT Corporate Governance Encouraging companies to have outside directors, easier for small shareholders to be  heard Agency Conflicts Managers/shareholders Compensation packages; stockholder intervention; threat of takeover Managers act as agent for owners make decisions that affect them Conflict managers are making decisions in their own interests Shareholders/creditors Restrictive covenants People who put in equity financing and those who put in debt financing
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This note was uploaded on 01/19/2012 for the course BLS 342 taught by Professor Miller during the Fall '08 term at Miami University.

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FIN 301 Notes - FINANCE301 Chapter1:Introduction...

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