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Financial Management Essay

1390 words - 6 pages

FINANCIAL MANAGEMENT
Chapter 1 The Corporation

Financial Management
2

How people in corporations make financial decisions? Financial decisions?
 Where,

when, what, how much, how…etc.  Mostly concern with three decisions: _______decisions, _________ decisions and _________decisions.

Chapter Outline
1.1 The Four Types of Firms 1.2 Ownership Versus Control of Corporations 1.3 The Stock Market

3

1.1 The Four Types of Firms
   

Sole Proprietorship
Partnership Limited Liability Company Corporation

4

Legal forms of business organisation

Sole proprietorship
A

business owned by a single individual, unlimited liability, limited access to ...view middle of the document...

1 The Four Types of Firms (cont'd)

Limited Liability Company (LLC)
 All

owners have limited liability (not personally liable) but they can also run the business.

 Can

be private or public companies.
as PLC in UK.

 Known

8

1.1 The Four Types of Firms (cont'd)

Corporation

A legal entity separate from its owners

Has many of the legal powers as individuals have, such as the ability to enter into contracts, own assets, and borrow money The corporation is solely responsible for its own obligations. Its owners are not liable for any obligation the corporation enters into.

An entity that legally functions separately and apart from its owners, limited liability, good access of capital/skills, separation of management and ownership, ownership is dictated by the shareholdings and is transferable.

9

1.1 The Four Types of Firms (cont'd)

Corporation
 Formation
 Corporations

must be legally formed. A legal document is created on formation of the corporation.

10

1.1 The Four Types of Firms (cont'd)

Corporation

Ownership
Dictated by shareholdings, represented by shares, or stock  Owner of shares is called

  

Shareholder Stockholder Equity holder

Sum of all ownership value is called equity.  There is no limit to the number of shareholders, and thus the amount of funds a company can raise by selling shares.  Owner is entitled to dividend payments based on his shareholdings.

11

1.1 The Four Types of Firms (cont'd)

Corporation
 Ownership
 Represented
  

by shares of stock  Owner of stock is called
Shareholder Stockhoder Equity Holder

 Sum

of all ownership value is called equity.  There is no limit to the number of shareholders, and thus the amount of funds a company can raise by selling stock.  Owner is entitled to dividend payments.
12

Legal forms of business organisation
13

Comparison of organisational forms Consider:


 


 

Organisation requirements and costs Liability of owners Continuity of business Transferability of ownership Management control Ease of capital raising Income taxes

1.2 Ownership versus Control of Corporations

Corporate Management Team
 In

a corporation, ownership and direct control are typically separate.

 Board

of Directors

 Elected

by shareholders  Have ultimate decision-making authority
 Chief

Executive Officer (CEO)

 Board

typically delegates day-to-day decision making to CEO.

14

Figure 1.2 Organizational Chart of a Typical Corporation

15

1.2 Ownership versus Control of Corporations (cont'd)

Financial Manager
 Responsible
 Investment

for:
Decisions

 Financing
 Cash

Decisions

(Treasury) Management

16

1.2 Ownership versus Control of Corporations (cont'd)

Goal of the Firm
 Shareholders

will agree that they are better off if management makes decisions that maximizes...

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