What is finance

1

CHAPTER 1An Overview of Finance

• What is finance
• Fields and jobs in Finance
• Forms of business organization
• Responsibility of financial staff
• Goals of the corporation

2
What is Finance

• Finance is the study of the flow of money
• Borrowing and Lending
• Financial institutions-the middle man
• Financial markets
• Financial instruments-standard contact of
  borrowing/lending

3
Fields and jobs in Finance

• Money and Capital Market
• Markets and institutions that provide short and
  long term capital Investment banks, banks,
  mutual funds, insurance companies, stockbrokers
• Regulators Fed, SEC (security and exchange
  commission)

4
Fields and jobs in Finance

• Investments
• Security analysis
• Portfolio management
• Market analysis
• Financial management (corporate finance)

5
Alternative Forms of Business Organization

• Sole proprietorship
• Partnership
• Corporation

6
Sole Proprietorship

• Advantages
• Ease of formation
• Subject to few regulations
• No corporate income taxes
• Disadvantages
• Limited life
• Unlimited liability
• Difficult to raise capital

7
Partnership

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

8
Why corporation? disadvantages

• Double taxation
• Cost of set-up and report filing
• Profit sharing

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Advantages

• Unlimited life
• Easy transfer of ownership
• Limited liability why?
• Fairness and efficiency
• Ease of raising capital
• Capitalize future earnings into stock value today

10
Responsibilities of the Financial Staff

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

11
Goals of the Corporation

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