Principles of Corporate Finance

Ninth Edition

Chapter 1
Finance and The Financial Manager

Slides by Matthew Will

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

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Topics Covered
What Is A Corporation? The Role of The Financial Manager Who Is The Financial Manager? Separation of Ownership and Management

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Corporate Structure
Sole Proprietorships

Unlimited Liability
Personal tax on profits

Partnerships

Limited Liability

Corporations

Corporate tax on profits + Personal tax on dividends

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

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Organizing a Business
Sole Partnership Proprietorship
Who owns the business? Are managers and owners separate? What is the owners liability? Are the owner & business taxed separately?
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Corporation
Shareholders Usually

The manager No

Partners No

Unlimited

Unlimited

Limited

No

No

Yes

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

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Financial Market Functions

Source of funding Investor liquidity Risk management Source of information

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Role of The Financial Manager

(2) (1)

Firm's operations
(3)

Financial manager

(4a)

Financial markets

(4b)
(1) Cash raised from investors (2) Cash invested in firm (3) Cash generated by operations (4a) Cash reinvested (4b) Cash returned to investors

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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

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Role of The Financial Manager

Common Finance Terminology
Real assets Financial assets / Securities Capital markets and financial markets Investment / capital budgeting Financing

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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

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Who is The Financial Manager?

Chief Financial Officer

Treasurer

Controller

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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

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Ownership vs. Management

Difference in Information Different Objectives

Stock prices and returns Issues of shares and other securities Dividends Financing

Managers vs. stockholders Top mgmt vs. operating mgmt Stockholders vs. banks and lenders

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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

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Web Resources
Click to access web sites Internet connection required

www.careers-in-finance.com www.careers.wsj.com

www.wageweb.com
www.corpgov.net www.thecorporatelibrary.com

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved