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What is financeFields and jobs in FinanceForms of business organizationResponsibility of financial staff
in a corporationGoals of the corporation
CHAPTER 1An Overview of Finance
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Finance is the study of the flow of moneyBorrowing and LendingFinancial institutions-the middle manFinancial instruments-standard contact of
borrowing/lendingFinancial markets
What is Finance
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Money and Capital MarketMarkets and institutions that provide short
and long term capital: Investment banks, banks, mutual funds, insurance companies, stockbrokers
Regulators: Fed, SEC (security and exchange commission)
Fields and jobs in Finance
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InvestmentsSecurity analysisPortfolio managementMarket analysis
Financial management (corporate finance)
Fields and jobs in Finance
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Sole proprietorshipPartnershipCorporation
Alternative Forms of Business Organization
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Advantages:Ease of formationSubject to few regulationsNo corporate income taxes
Disadvantages:Limited lifeUnlimited liabilityDifficult to raise capital
Sole Proprietorship
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A partnership has roughly the same advantages and disadvantages as a sole proprietorship.
Partnership
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Why corporation? disadvantages
Double taxationCost of set-up and report filingProfit sharing
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Unlimited life Easy transfer of ownership Limited liability: why?
Fairness and efficiency Ease of raising capital Capitalize future earnings into stock
value today
Advantages
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Investment and financing decisions Forecasting and planning Transactions in the financial markets Managing risk (insurance, hedging)
Responsibilities of the Financial Staff
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The primary goal is shareholder wealth maximization, which translates to maximizing stock price.
Goals of the Corporation