Professional Documents
Culture Documents
FinancialManager:Top financial manager within firm, usually Chief Financial Officer (CFO).
Treasurer:oversees cash mgmt, credit mgmt, capital expenditures & financial planning. Controller:
oversees taxes, cost accounting, financial accounting & data processing
Alt.FormsofBusinessOrganization:1.Sole proprietorship 2.Partnership3.Corporation
SoleProprietorship(indiv owns & manages biz). +:Easiest to start. Least regulated. Single owner keeps
all profits. Taxed once as personal income. :Limit to life of owner. Equity cap limit to owners personal
wealth. Unlimited liab. Diff to sell ownership interest
Partnership(groupof individuals collectively own & manage business; roughly same advantages &
disadvantages as a SP) +:2 or more owners. More capital available. Relatively easy to start. Income taxed
once as personal income. :Unlimited liab (General Partnership, Limited P). Part dissolves when one
partner dies/wish to sell. Diff transfer ownership.
Corporation(created via ArticlesofIncorporation)Set out purpose of bizEstablish no. of shares that
can be issued.Set no. of directors appointed. Ownership & Mgmt separated. A corp issues equity
shares. Holders of these shares are ownersof the firm. Although stockholders own corporation, do not
necessarily manage it. Instead vote to elect Board of Directors (BOD). BOD represents shareholders(i)
selects management team, (ii) appoints auditors (iii) is responsible for checking/monitoring management
actions.
CorporateStructureSeparationofOwnership&Control:(DRAW)
HowToHandleTheAgencyProblem?
1.Compensation plans tie fortunes of managers to fortunes of firm.
2. Monitoring by lenders, stock market analysts and investors.
3.Threat that poorly performing managers will be fired.
4.Growing awareness of importance of good CorporateGovernance.
WhatisCorporateGovernance?
Term refers broadly to rules, processes, laws which businesses are operated, regulated, controlled. Can
refer to internal factors defined by officers, stockholders or constitution of a corporation, also to external
forces like consumer groups, clients, government regulations.
serve corp. purposes by providing structure which stockholders, directors, mgmt can pursue most
effectively objectives of corp".
Good corp. governance view organizations as a webofrelationshipsbetween and among various
stakeholders and manage their interests in a responsible manner.
TheFirm&ItsSourcesofFunds
FinancialMarkets:mkts whr financial instruments traded intermediaries btw savers&borrowers
MoneyMkts vs CapitalMktsPrimaryMkts vs SecondaryMkts
MoneyMarketsvs.CapitalMarkets
Moneymkts debt securities of lessthan1yrtraded: treasury securities, commercial paper, bills, interbank loans loosely connected dealermarkets banks are major players
Capitalmkts whr equity&longertermdebtclaimstraded auctionmkts (ie. SGExchange)
Example:MoneyMarkets:OCBCtosetupcommercialpaperprogram,sellUSDfloatingratenotesExampleCapitalMarkets: Alibaba IPO
ranks as world's biggest
PrimaryMarketvs.SecondaryMarket
PrimarymktDirecttransactionwithcompany
for govt & corp initially issued securities. public offering (securities offered to public at large; needs
underwriting, more regulatory requirements, costly) private offering (securities offered to large financial
institutions or wealthy individuals etc.; less costly)
Secondarymkt Stocksfromexchange(alrdyboughtfromsomeonepreviously)
whr existing financial claims traded dealer mkt (eg. OTC mkts) auction mkt (e.g. SGX, NYSE)
where getting mkt value of securities easier
FirmsSourcesOfFunds:(DRAW)
Summary
1. Scope of financial studies - businessfinance,financialmktsand investments.
2. Biz finance - investmentand financingdecisions & workingcapitalmanagement.
3. Goal of financial mgmt is make decisions to maxmktvalueof equity/owners wealth.
4. Conflicts of interest btw shareholders and managers - agencycosts.
Finance2