Download - Chap001 Instructors
-
8/18/2019 Chap001 Instructors
1/17
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights© 2003 The McGraw-Hill Companies, Inc. All rights
-
8/18/2019 Chap001 Instructors
2/17
-
8/18/2019 Chap001 Instructors
3/17
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Key Concepts and Skills
•Know the basic types of financial managementdecisions and the role of the financial manager
• Know the financial implications of the different
forms of business organization
• Know the goal of financial management
• Understand the conflicts of interest that can
arise between owners and managers
• Understand the various types of financial
markets
1.1
-
8/18/2019 Chap001 Instructors
4/17
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Chapter Outline
•Corporate Finance and the Financial anager
• Forms of !usiness "rganization
• #he $oal of Financial anagement
• #he %gency &roblem and Control of theCorporation
• Financial arkets and the Corporation
1.'
-
8/18/2019 Chap001 Instructors
5/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Corporate Finance
•(ome important )uestions that are answeredusing finance
* +hat long,term investments should the firm take
on-
* +here will we get the long,term financing to pay
for the investment-
* ow will we manage the everyday financial
activities of the firm-
1./
-
8/18/2019 Chap001 Instructors
6/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Financial Manager
•Financial managers try to answer some or all ofthese )uestions
• #he top financial manager within a firm is
usually the Chief Financial "fficer 0CF"
* #reasurer * oversees cash management2 credit
management2 capital e3penditures and financial
planning
* Controller * oversees ta3es2 cost accounting2financial accounting and data processing
1.4
-
8/18/2019 Chap001 Instructors
7/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Financial Management Decisions
•Capital budgeting * +hat long,term investments or pro5ects should the
business take on-
• Capital structure
* ow should we pay for our assets- * (hould we use debt or e)uity-
• +orking capital management
* ow do we manage the day,to,day finances of thefirm-
1.6
-
8/18/2019 Chap001 Instructors
8/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Forms of Business Organization
•#hree ma5or forms in &akistan * (ole proprietorship
* &artnership
• $eneral
• 7imited
* Corporation
• (,Corp
• 7imited liability company
1.8
http://www.nolo.com/encyclopedia/articles/sb/which_form.html
-
8/18/2019 Chap001 Instructors
9/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Sole roprietorship
• %dvantages
* 9asiest to start
* 7east regulated
* (ingle owner keeps all
the profits
* #a3ed once as personal
income
• :isadvantages
* 7imited to life of owner
* 9)uity capital limited to
owner;s personal wealth
* Unlimited liability
* :ifficult to sell
ownership interest
1.<
-
8/18/2019 Chap001 Instructors
10/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
artnership
• %dvantages
* #wo or more owners
* ore capital available
* =elatively easy to start
* >ncome ta3ed once as personal income
• :isadvantages
* Unlimited liability
• $eneral partnership
• 7imited partnership
* &artnership dissolves
when one partner dies or
wishes to sell
* :ifficult to transfer
ownership
1.?
-
8/18/2019 Chap001 Instructors
11/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Corporation
• %dvantages
* 7imited liability
* Unlimited life
* (eparation of ownership
and management
* #ransfer of ownership is
easy
* 9asier to raise capital
• :isadvantages
* (eparation of ownership
and management
* :ouble ta3ation 0income
ta3ed at the corporate rate
and then dividends ta3ed
at personal rate
1.@
-
8/18/2019 Chap001 Instructors
12/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
!oal Of Financial Management
• +hat should be the goal of a corporation-
* a3imize profit-
* inimize costs-
* a3imize market share-
* a3imize the current value of the company;s
stock-
• :oes this mean we should do anything and
everything to ma3imize owner wealth-
1.1A
-
8/18/2019 Chap001 Instructors
13/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
The "gency ro#lem
• %gency relationship
* &rincipal hires an agent to represent their interest
* (tockholders 0principals hire managers 0agents to
run the company
• %gency problem
* Conflict of interest between principal and agent
• anagement goals and agency costs
1.11
-
8/18/2019 Chap001 Instructors
14/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Managing Managers
• anagerial compensation
* >ncentives can be used to align management andstockholder interests
* #he incentives need to be structured carefully to
make sure that they achieve their goal• Corporate control
* #he threat of a takeover may result in bettermanagement
• "ther stakeholders
1.1'
-
8/18/2019 Chap001 Instructors
15/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
$ork the $e# %&le
• #he >nternet provides a wealth of information
about individual companies
• "ne e3cellent site is finance.yahoo.com
• Click on the web surfer to go to the site2 choose
a company and see what information you can
findB
1.1/
-
8/18/2019 Chap001 Instructors
16/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
Financial Markets
• Cash flows to the firm
• &rimary vs. secondary markets
* :ealer vs. auction markets
* 7isted vs. over the counter securities
• D(9
• %(:%E
1.14
-
8/18/2019 Chap001 Instructors
17/17McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights
'uick 'uiz
• +hat are the three types of financialmanagement decisions and what )uestions arethey designed to answer-
• +hat are the three ma5or forms of business
organization-• +hat is the goal of financial management-
• +hat are agency problems and why do they
e3ist within a corporation-• +hat is the difference between a primary
market and a secondary market-
1.16