Chapter 1 - Overview of financial management and the financial environment. After studying this chapter, you will know: Forms of business organization; objective of the firm: maximize wealth; financial securities, markets and institutions. | CHAPTER 1 Overview of Financial Management and the Financial Environment Topics in Chapter Forms of business organization Objective of the firm: Maximize wealth Financial securities, markets and institutions Why is corporate finance important to all managers? Corporate finance provides the skills managers need to: Identify and select the corporate strategies and individual projects that add value to their firm. Forecast the funding requirements of their company, and devise strategies for acquiring those funds. Business Organization from Start-up to a Major Corporation Sole proprietorship Partnership Corporation (More . .) Starting as a Proprietorship Advantages: Ease of formation Subject to few regulations No corporate income taxes Disadvantages: Limited life Unlimited liability Difficult to raise capital to support growth Starting as or Growing into a Partnership A partnership has roughly the same advantages and disadvantages as a sole proprietorship. Becoming a | CHAPTER 1 Overview of Financial Management and the Financial Environment Topics in Chapter Forms of business organization Objective of the firm: Maximize wealth Financial securities, markets and institutions Why is corporate finance important to all managers? Corporate finance provides the skills managers need to: Identify and select the corporate strategies and individual projects that add value to their firm. Forecast the funding requirements of their company, and devise strategies for acquiring those funds. Business Organization from Start-up to a Major Corporation Sole proprietorship Partnership Corporation (More . .) Starting as a Proprietorship Advantages: Ease of formation Subject to few regulations No corporate income taxes Disadvantages: Limited life Unlimited liability Difficult to raise capital to support growth Starting as or Growing into a Partnership A partnership has roughly the same advantages and disadvantages as a sole proprietorship. Becoming a Corporation A corporation is a legal entity separate from its owners and managers. File papers of incorporation with state. Charter Bylaws Advantages and Disadvantages of a Corporation Advantages: Unlimited life Easy transfer of ownership Limited liability Ease of raising capital Disadvantages: Double taxation Cost of set-up and report filing Becoming a Public Corporation and Growing Afterwards Initial Public Offering (IPO) of Stock Raises cash Allows founders and pre-IPO investors to “harvest” some of their wealth Subsequent issues of debt and equity Agency Problems and Corporate Governance Agency problem: managers may act in their own interests and not on behalf of owners (stockholders) Corporate governance is the set of rules that control a company’s behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community. Corporate governance can help control agency problems. What should be management’s primary objective? .
