Introduction to Financial Management and Forms of Businesses

Introduction to Financial Management and Forms of Businesses
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This chapter provides an overview of financial management and various forms of businesses. It covers the goals of corporations, stock prices, and intrinsic value, as well as recent trends and conflicts between managers

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PowerPoint presentation about 'Introduction to Financial Management and Forms of Businesses'. This presentation describes the topic on This chapter provides an overview of financial management and various forms of businesses. It covers the goals of corporations, stock prices, and intrinsic value, as well as recent trends and conflicts between managers. The key topics included in this slideshow are . Download this presentation absolutely free.

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Slide11-1CHAPTER 1 Introduction to Financial Management  Forms of Businesses  Goals of the Corporation  Stock Prices and Intrinsic Value  Some Recent Trends  Conflicts Between Managers and Shareholders

Slide21-2Alternative Forms of Business Organization  Proprietorship  Partnership  Corporation

Slide31-3Proprietorships & Partnerships  Advantages  Ease of formation  Subject to few regulations  No corporate income taxes  Disadvantages  Difficult to raise capital  Unlimited liability  Limited life

Slide41-4Corporation  Advantages  Unlimited life  Easy transfer of ownership  Limited liability  Ease of raising capital  Disadvantages  Double taxation  Cost of set-up and report filing

Slide51-5Financial Goals of the Corporation  The primary financial goal is shareholder wealth maximization, which translates to maximizing stock price.  Do firms have any responsibilities to society at large?  Is stock price maximization good or bad for society?  Should firms behave ethically?

Slide61-6Factors that affect stock price  Projected cash flows to shareholders  Timing of the cash flow stream  Riskiness of the cash flows

Slide71-7Stock Prices and Intrinsic Value  In equilibrium, a stock’s price should equal its “true” or intrinsic value.  To the extent that investor perceptions are incorrect, a stock’s price in the short run may deviate from its intrinsic value.  Ideally, managers should avoid actions that reduce intrinsic value, even if those decisions increase the stock price in the short run.

Slide81-8Determinants of Intrinsic Value and Stock Prices (Figure 1-1)

Slide91-9Some Important Trends  Recent corporate scandals have reinforced the importance of business ethics, and have spurred additional regulations and corporate oversight.  The effects of changing information technology have had a profound effect on all aspects of business finance.  The continued globalization of business.

Slide101-10Conflicts Between Managers and Stockholders  Managers are naturally inclined to act in their own best interests (which are not always the same as the interest of stockholders).  But the following factors affect managerial behavior:  Managerial compensation plans  Direct intervention by shareholders  The threat of firing  The threat of takeover

Slide111-11Responsibility of the Financial Staff  Maximize stock value by:  Forecasting and planning  Investment and financing decisions  Coordination and control  Transactions in the financial markets  Managing risk

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