Lecture 1: An Overview of Financial Management

FINANCIAL MANAGEMENT

Forms of Business Organization

• Proprietorship– Unincorporated business owned by one individual

• Partnership– An unincorporated business owned by two or

more persons• Corporation– A legal entity created by a state, having unlimited

life, and limited liability

Forms of Business Organization (Cont’)

• S Corporation– A special designation that allows small businesses

that meet qualifications to be taxed as if they were proprietorships or partnerships and thus exempt from the corporate income tax

Forms of Business Organization (Cont’)

• Value of business through corporation can be maximized through three reasons:① The lower the firm’s risk, the higher its value② A firm’s value is dependent on its growth

opportunities and its ability to attract capital③ The value of an assets also depends on it

liquidity

Stock price and shareholder value

• Stockholder Wealth Maximization– The primary goal for managerial decisions,

considers the risk and timing associated with expected earnings per share in order to maximize the firm’s common stock (value)

Business Ethics

• Business Ethics– A company’s attitude and conduct toward its

employees, customers, community, and stockholders

• What companies are doing– Training program– Profit and ethics– Responsibility

Business Ethics (Cont’)

• Consequences of Unethical Behavior– Enron case– WorldCom case – Oracle corporation case

• How should employees deal with unethical behavior? (Assignment)

• Conflict between Managers and Stockholders (Assignment)

The Role of Finance in the Organization

• Chairman of the board– The person most responsible for the firm’s

strategic policies• Compensation committee– A committee that consist of the outside

(nonemployee) directors who set the compensation package for senior officers

The Role of Finance in the Organization (Cont’)

• Chief Executive Officer (CEO)– Head of the management team, and ideally is

separate from chairman of the board• Chief operating officer (COO)– In charge of the firm’s actual operations

• Chief Financial Officer (CFO)– Responsible for accounting system, raising capital,

and evaluating major investment decisions and the effectiveness of operations

Many Thanks…..