Chapter 1 Overview of Financial Management & Environment

2510 WordsFeb 23, 201211 Pages
CHAPTER 1 Overview of Financial Management & Environment 1-1 Overview of Financial Management Role of financial management Forms of business organization Goals of the corporation Agency relationships 1-2 All Successful Firms Accomplish 2 Goals They identify, create, & deliver products or services that are highly valued This happens only if the firm provides more value than its competitors (in the form of either lower prices or better products) They sell at prices high enough to cover costs and to compensate owners and creditors for their exposure to risk The profit must be high enough to adequately 1-3 compensate investors 3 Key Attributes for Success 1. 2. Skilled People at all levels Leaders, managers and work force Strong…show more content…
s’s liabilities Their potential losses are limited to their investment This increase the risk faced by an LLP’s lender, customers, and suppliers 1-16 Corporation Many owners Legal entity created by a state, and it is separate and distinct from its owners and managers 1-17 Corporation Advantages: Unlimited life A corporation can continue after its original owners and managers are deceased Easy transfer of ownership Ownership interests can be divided into shares of stock, which can be transferred easily Limited liability Losses are limited to the actual funds invested Ease of raising capital 1-18 Corporation Disadvantages: Corporate earnings may be subject to double taxation The earnings of the corporation are taxed at the corporate level, and then earnings paid out as dividends are taxed again as income to the stock holders Cost of set-up and report filing Setting up a corporation involves preparing a charter, writing a set of bylaws and filling the many required reports 1-19 Corporation Charter: Establishing Separate Legal Entity Name Activities Amount of Capital Stock Number of Directors Names & Addresses of Directors Bylaws: Rules for conduct of Activities How Directors will be elected Preemptive Right to new stock issues Procedures for changing Bylaws, if required 1-20 Goals of the Corporation The primary goal is shareholder wealth maximization, which translates to maximizing stock price 1-21 Factors that affect stock price Projected cash flows to
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