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MANAGEMENT
01 AN OVERVIEW OF FINANCIAL
MANAGEMENT
J. VILLENA, CPA
FINANCIAL MANAGEMENT
- Concerns the acquisition, financing, and management of assets with some
overall goal in mind.
ROLE OF MANAGEMENT
Management acts as an agent for the owners (shareholders) of the firm.
AGENCY THEORY
Jensen and Meckling developed a theory of the firm based on agency
theory.
Agency Theory is a branch of economics relating to the behaviour of
principals and their agents.
CORPORATE GOVERNANCE
-refers to the system by which corporations are managed and controlled.
-Includes shareholders, board of directors, and senior management
Board of Directors
Typical responsibilities:
1. Set company-wide policy;
2. Advise the CEO and other senior executives;
3. Hire, fire, and set the compensation of the CEO;
4. Review and approve strategy, significant investments, and
acquisitions;
5. Oversee operating plans, capital budgets, and financial reports to
common shareholders
Page 1 of 4 BAFM2B
FIM01- FUNDAMENTAL OF FINANCIAL
MANAGEMENT
01 AN OVERVIEW OF FINANCIAL
MANAGEMENT
J. VILLENA, CPA
Page 2 of 4 BAFM2B
FIM01- FUNDAMENTAL OF FINANCIAL
MANAGEMENT
01 AN OVERVIEW OF FINANCIAL
MANAGEMENT
J. VILLENA, CPA
THE ROLE OF FINANCIAL MANAGERS
1. Knowledgeable of financial tools is relevant for decision making in all areas of
business.
2. Decisions involve an element of time and uncertainty.
3. Decisions taken in business should be financially feasible.
1. Sole Proprietorship
Advantages of a Sole Proprietorship
Easy and inexpensive to register
Regulatory burden is generally light
You have direct control of decision making
Minimal working capital required for start-up
All profits go to you directly
2. Partnerships
Advantages of a Partnership
Partnerships are relatively easy to establish; however time should be
invested in developing the partnership agreement.
With more than one owner, the ability to raise funds may be increased.
Start-up costs are shared equally with you and your partner(s)
Equal share in the management, profits and assets
Disadvantages of a Partnership
Partners are jointly and individually liable for the actions of the other
partners.
Since decisions are shared, disagreements can occur.
Some employee benefits are not deductible from business income on
tax returns.
The partnership may have a limited life; it may end upon the
withdrawal or death of a partner.
Can be difficult to find a suitable partner.
3. Corporations
Advantages of a Corporation
Limited liability
Ownership is transferable
Continuous existence
Easier to raise capital than it might be with other business structures
Possible tax advantage as taxes may be lower for an incorporated
business
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FIM01- FUNDAMENTAL OF FINANCIAL
MANAGEMENT
01 AN OVERVIEW OF FINANCIAL
MANAGEMENT
J. VILLENA, CPA
Disadvantages of a Corporation
A corporation is closely regulated
More expensive to set up a corporation than other business forms
Extensive corporate records required, including documentation filed
annually with the government
You may be required to prove residency or citizenship of directors
BUSINESS ETHICS
ETHICAL DILEMMA: Each person has his or her own set of values, which
forms the basis for personal judgments about what is the right thing.
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