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Financial management: corporate finance, which deals with decisions related to how much and what types of assets a firm needs to acquire, how a firm should raise capital to purchase assets, and how a firm should do to maximize its shareholders wealth - the focus of this class.
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Nov 14, 2022 · Introduction to Finance. Why it Matters. 1.1 What Is Finance? 1.2 The Role of Finance in an Organization. 1.3 Importance of Data and Technology. 1.4 Careers in Finance. 1.5 Markets and Participants. 1.6 Microeconomic and Macroeconomic Matters. 1.7 Financial Instruments. 1.8 Concepts of Time and Value. Summary. Key Terms. Multiple Choice.
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Jun 21, 2023 · Article PDF Available. Financial Management: A System of Relations for Optimizing Enterprise Finances – a Review. June 2023. Journal Markcount Finance 1 (3):160-170. DOI:...
- FINANCIAL MANAGEMENT
- Financial Analysis
- FORMS OF BUSINESS ENTERPRISE
- Sole Proprietorships
- Partnerships
- Other Forms of Business
- Prevalence
- The Objective of Financial Management
- Sole Proprietorship
- General Partnership
- Corporation
- Economic Profit versus Accounting Profit: Share Price versus Earnings Per Share
- Share Prices and Efficient Markets
- Financial Management and the Maximization of Owners’ Wealth
- THE AGENCY RELATIONSHIP
- Problems with the Agency Relationship
- Costs of the Agency Relationship
- Motivating Managers: Executive Compensation
- Shareholder Wealth Maximization and Social Responsibility
- SUMMARY
Financial management encompasses many different types of decisions. We can classify these decisions into three groups: investment decisions, financing decisions, and decisions that involve both investing and financing. Investment decisions are concerned with the use of funds— the buying, holding, or selling of all types of assets: Should we buy a n...
Financial analysis is a tool of financial management. It consists of the evaluation of the financial condition and operating performance of a business firm, an industry, or even the economy, and the forecasting of its future condition and performance. It is, in other words, a means for examining risk and expected return. Data for financial analysis...
Financial management is not restricted to large corporations: It is neces-sary in all forms and sizes of businesses. The three major forms of busi-ness organization are the sole proprietorship, the partnership, and the corporation. These three forms differ in a number of factors, of which those most important to financial decision-making are: The w...
The simplest and most common form of business enterprise is the sole proprietorship , a business owned and controlled by one person—the proprietor. Because there are very few legal requirements to establish and run a sole proprietorship, this form of business is chosen by many individuals who are starting up a particular business enterprise. The so...
partnership is an agreement between two or more persons to operate a business. A partnership is similar to a sole proprietorship except instead of one proprietor, there is more than one. The fact that there is more than one proprietor introduces some issues: Who has a say in the day-to-day opera-tions of the business? Who is liable (that is, financ...
In addition to the proprietorship, partnership, and corporate forms of business, an enterprise may be conducted using other forms of business, such as the master limited partnership, the professional corporation, the limited liability company, and the joint venture. A master limited partnership is a partnership with limited partner ownership intere...
The advantages and disadvantages of the three major forms of business from the point of view of financial decision-making are summarized in Exhibit 1.1. Firms tend to evolve from proprietorship to partnership to corporation as they grow and as their needs for financing increase. Sole proprietorship is the choice for starting a business, whereas the...
So far we have seen that financial managers are primarily concerned with investment decisions and financing decisions within business organiza-tions. The great majority of these decisions are made within the corporate business structure, which better accommodates growth and is responsible for 89% of U.S. business income. Hence, most of our discussi...
Advantages The proprietor is the sole business decision-maker. The proprietor receives all income from business. Income from the business is taxed once, at the individual taxpayer level. Disadvantages The proprietor is liable for all debts of the business (unlimited liability). The proprietorship has a limited life. There is limited access to addit...
Advantages Partners receive income according to terms in partnership agreement. Income from business is taxed once as the partners’ personal income. Decision-making rests with the general partners only. Disadvantages Each partner is liable for all the debts of the partnership. The partnership’s life is determined by agreement or the life of the par...
Advantages The firm has perpetual life. Owners are not liable for the debts of the firm; the most that owners can lose is their ini-tial investment. The firm can raise funds by selling additional ownership interest. Income is distributed in proportion to ownership interest. Disadvantages Income paid to owners is subjected to double taxation. Owners...
When you studied economics, you saw that the objective of the firm is to maximize profit. In finance, however, the objective is to maximize owners’ wealth. Is this a contradiction? No. We have simply used differ-ent terminology to express the same goal. The difference arises from the distinction between accounting profit and economic profit. Econom...
We have seen that the price of a share of stock today is the present value of the dividends and share price the investor expects to receive in the future. What if these expectations change? Suppose you buy a share of stock of IBM. The price you are willing to pay is the present value of future cash flows you expect from divi-dends paid on one share...
Financial managers are charged with the responsibility of making deci-sions that maximize owners’ wealth. For a corporation, that responsibil-ity translates into maximizing the value of shareholders’ equity. If the market for stocks is efficient, the value of a share of stock in a corpora-tion should reflect investors’ expectations regarding the fu...
If you are the sole owner of a business, then you make the decisions that affect your own well-being. But what if you are a financial manager of a business and you are not the sole owner? In this case, you are making decisions for owners other than yourself; you, the financial manager, are an agent. An agent is a person who acts for—and exerts powe...
In an agency relationship, the agent is charged with the responsibility of acting for the principal. Is it possible the agent may not act in the best interest of the principal, but instead act in his or her own self-interest? Yes—because the agent has his or her own objective of maximizing per-sonal wealth. In a large corporation, for example, the ...
There are costs involved with any effort to minimize the potential for conflict between the principal’s interest and the agent’s interest. Such costs are called agency costs, and they are of three types: monitoring costs, bonding costs, and residual loss. Monitoring costs are costs incurred by the principal to monitor or limit the actions of the ag...
One way to encourage management to act in shareholders’ best inter-ests, and so minimize agency problems and costs, is through executive compensation—how top management is paid. There are several differ-ent ways to compensate executives, including: Salary. The direct payment of cash of a fixed amount per period. Bonus. A cash reward based on some p...
When financial managers assess a potential investment in a new prod-uct, they examine the risks and the potential benefits and costs. If the risk-adjusted benefits do not outweigh the costs, they will not invest. Similarly, managers assess current investments for the same purpose; if benefits do not continue to outweigh costs, they will not continu...
Finance comprises three areas: financial management, investments, and financial institutions. These three areas are linked together through a common body of knowledge that includes the theories and tools of finance. The decision-making of financial managers can be broken down into two broad classes: investment decisions and financing decisions. Inv...
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Although finance is primarily about the management of money, a key component of finance is the management and interpretation of information. Indeed, if you pursue a career in management information systems or accounting, finance managers are likely to be your most important clients.
Financial management is the subset of management that focuses on generating financial information that can be used to improve decision making. In proprietary, or for-profit, organizations, the unifying goal of all decisions is to maximize the wealth of the owners of the organization.
Dec 16, 2013 · Language. English. Includes bibliographical references and index. Part I. Introduction To Financial Management -- 1. An Overview of Financial Management -- Part II. Fundamental Concepts in Financial Management -- 2. Financial Markets and Institutions -- 3. Financial Statements, Cash Flow, and Taxes -- 4. Analysis of Financial Statements -- 5.
