1 - 1

What is financeFields and jobs in FinanceForms of business organizationResponsibility of financial staff

in a corporationGoals of the corporation

CHAPTER 1An Overview of Finance

1 - 2

Finance is the study of the flow of moneyBorrowing and LendingFinancial institutions-the middle manFinancial instruments-standard contact of

borrowing/lendingFinancial markets

What is Finance

1 - 3

Money and Capital MarketMarkets and institutions that provide short

and long term capital: Investment banks, banks, mutual funds, insurance companies, stockbrokers

Regulators: Fed, SEC (security and exchange commission)

Fields and jobs in Finance

1 - 4

InvestmentsSecurity analysisPortfolio managementMarket analysis

Financial management (corporate finance)

Fields and jobs in Finance

1 - 5

Sole proprietorshipPartnershipCorporation

Alternative Forms of Business Organization

1 - 6

Advantages:Ease of formationSubject to few regulationsNo corporate income taxes

Disadvantages:Limited lifeUnlimited liabilityDifficult to raise capital

Sole Proprietorship

1 - 7

A partnership has roughly the same advantages and disadvantages as a sole proprietorship.

Partnership

1 - 8

Why corporation? disadvantages

Double taxationCost of set-up and report filingProfit sharing

1 - 9

Unlimited life Easy transfer of ownership Limited liability: why?

Fairness and efficiency Ease of raising capital Capitalize future earnings into stock

value today

Advantages

1 - 10

Investment and financing decisions Forecasting and planning Transactions in the financial markets Managing risk (insurance, hedging)

Responsibilities of the Financial Staff

1 - 11

The primary goal is shareholder wealth maximization, which translates to maximizing stock price.

Goals of the Corporation