Introduction To Financial Management Essay

1146 WordsJan 27, 20145 Pages
Define the terms finance and financial management, and identify the major sub-areas of finance. Finance is the study of applying specific value to things individuals own to include services used and decisions determined [Finance by Cornett, M. M., Adair, T. A., & Nofsinger J. (2014). M: Finance (2nd ed.)]. In simple words, finance is how much value is attributable to goods and services and the basis of such attribution. Financial management may be defined as the management of the finances of a business or an organization in order to achieve the financial objectives. It includes creation, effective utilization of funds to ensure the smooth functioning of the business. It encompasses planning, administration and controlling. The various…show more content…
The advantages are as follows: • More than one owner is there in business and hence the risk is shared • Each partner will contribute capital and hence more capital will be available • This is also relatively easier to start compared to a corporation • The income from this type of ownership is taxed once as personal income The disadvantages of a partnership is as follows: • The profits are shared between the partners. Hence, when compared to a sole proprietorship there is lesser profits • Generally, the liability of the partners is unlimited (except in the case of a limited liability) • It is difficult to transfer ownership A corporation is a separate legal entity whose transactions and conduct of the business is separate from its owners. Corporations can borrow money, sue and be sued in its own name. The advantages of a corporation are as follows: • The liability is limited to the amount paid on stock by the investor • The corporation has an unlimited life • There is separation of ownership and management as the corporation is a separate legal entity • Transfer of ownership is easy • As a corporation, it is easier to raise capital from equity and debt market The disadvantages are: • The agency problem arises as there is separation of management and
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