Scribd
Upload
195 views

Introduction To Corporate Finance

This document provides an introduction to corporate finance. It discusses key financial management decisions around capital budgeting, capital structure, and working capital management. It also covers different forms of business organization like sole proprietorships, partnerships, and corporations. The goal of financial management is to maximize the value of the company for shareholders. However, there is an agency problem since managers may not always act in shareholders' best interests.

Uploaded by

Gabe Farajollah
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
195 views

Introduction To Corporate Finance

This document provides an introduction to corporate finance. It discusses key financial management decisions around capital budgeting, capital structure, and working capital management. It also covers different forms of business organization like sole proprietorships, partnerships, and corporations. The goal of financial management is to maximize the value of the company for shareholders. However, there is an agency problem since managers may not always act in shareholders' best interests.

Uploaded by

Gabe Farajollah
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 16

Introduction To Corporate

Finance
Chapter
One
Corporate Finance
• Some important questions that are
answered using finance
– What long-term investments should the firm
take on?
– Where will we get the long-term financing to
pay for the investment?
– How will we manage the everyday financial
activities of the firm?
Financial Manager
• Financial managers try to answer some or
all of these questions
• The top financial manager within a firm is
usually the Chief Financial Officer (CFO)
– Treasurer – oversees cash management,
credit management, capital expenditures and
financial planning
– Controller – oversees taxes, cost accounting,
financial accounting and data processing
Organizational Chart of a Typical
Company
Financial Management
Decisions
• Capital budgeting
– What long-term investments or projects should
the business take on?
• Capital structure
– How should we pay for our assets?
– Should we use debt or equity?
• Working capital management
– How do we manage the day-to-day finances of
the firm?
Forms of Business Organization
• Three major forms in the United States
– Sole proprietorship
– Partnership
• General
• Limited
– Corporation
• S-Corp
• Limited liability company
Sole Proprietorship
• Advantages • Disadvantages
– Easiest to start – Limited to life of owner
– Least regulated – Equity capital limited to
– Single owner keeps all owner’s personal
the profits wealth
– Taxed once as – Unlimited liability
personal income – Difficult to sell
ownership interest
Partnership
• Advantages • Disadvantages
– Two or more owners – Unlimited liability
– More capital available • General partnership
– • Limited partnership
Relatively easy to start
– Income taxed once as – Partnership dissolves
personal income when one partner dies
or wishes to sell
– Difficult to transfer
ownership
Corporation
• Advantages • Disadvantages
– Limited liability – Separation of
– Unlimited life ownership and
– Separation of management
ownership and – Double taxation
management (income taxed at the
– Transfer of ownership corporate rate and then
is easy dividends taxed at
personal rate)
– Easier to raise capital
Corporation – continued…
• S-Corporation
• Limited Liability
Company (LLC)
• International
Corporations
Goal Of Financial Management
• What should be the goal of a corporation?
– Maximize profit?
– Minimize costs?
– Maximize market share?
– Maximize the current value of the company’s
stock?
• Does this mean we should do anything and
everything to maximize owner wealth?
The Agency Problem
• Agency relationship
– Principal hires an agent to represent their interest
– Stockholders (principals) hire managers (agents)
to run the company
• Agency problem
– Conflict of interest between principal and agent
• Management goals and agency costs (direct
and indirect)
Managing Managers
• Managerial compensation
– Incentives can be used to align management
and stockholder interests
– The incentives need to be structured carefully
to make sure that they achieve their goal
• Corporate control
– The threat of a takeover may result in better
management
• Other stakeholders
Work the Web Example
• The Internet provides a wealth of
information about individual companies
• One excellent site is finance.yahoo.com
• Click on the web surfer to go to the site,
choose a company and see what
information you can find!
Financial Markets and the
Corporation
• Cash flows to the firm
Financial Markets – continued…
• Primary vs. secondary markets
– Dealer vs. auction markets
– Listed vs. over the counter securities
• NYSE
• NASDAQ

You might also like