Fundaments of Financial Management
OVERVIEW OF CORPORATION
Lesson 1
Chapter 1 : Outline
1.1 What is Corporate Finance ?
Some important questions that are answered using finance
• What long-term investments should the firm take on?
• Where will we get the long-term financing to pay for the investment?
• How will we manage the everyday financial activities of the firm?
Financial Manager
Financial managers try to answer some or all of these questions
The top financial manager within a firm is usually the Chief Financial Officer (CFO)
• Treasurer – oversees cash management, capital expenditures and financial planning
• Controller – oversees taxes, cost accounting, financial accounting and data processing
Financial Management Decisions
Capital budgeting
• Should you take a particular project?
• What is this project worth?
Capital structure
• To undertake project investments, should you borrow money (debt) or sell a share to partners (equity) or finance it yourself (if you can)?
• How can/should a manager finance projects and disperse funds?
Working capital management
• How do we manage the day-to-day finances of the firm?
1.2 Forms of Business Administration
Three major forms in Canada • Sole proprietorship • Partnership • General • Limited • Corporation
• In other countries, corporations are also called joint stock companies, public limited companies and limited liability companies
SOLE PROPRIETORSHIP A business owned by a single individual | Advantages • Easiest to start • Least regulated • Single owner keeps all the profits • Taxed once as personal income | Disadvantages • Unlimited liability • Limited to life of owner • Equity capital limited to owner’s personal wealth • Difficult to sell ownership interest |
PARTNERSHIP A business formed by two or more co-owners | Advantages • Two or more owners • More human and financial capital available • Relatively easy to start • Income taxed once as personal income |
Lesson 1
Chapter 1 : Outline
1.1 What is Corporate Finance ?
Some important questions that are answered using finance
• What long-term investments should the firm take on?
• Where will we get the long-term financing to pay for the investment?
• How will we manage the everyday financial activities of the firm?
Financial Manager
Financial managers try to answer some or all of these questions
The top financial manager within a firm is usually the Chief Financial Officer (CFO)
• Treasurer – oversees cash management, capital expenditures and financial planning
• Controller – oversees taxes, cost accounting, financial accounting and data processing
Financial Management Decisions
Capital budgeting
• Should you take a particular project?
• What is this project worth?
Capital structure
• To undertake project investments, should you borrow money (debt) or sell a share to partners (equity) or finance it yourself (if you can)?
• How can/should a manager finance projects and disperse funds?
Working capital management
• How do we manage the day-to-day finances of the firm?
1.2 Forms of Business Administration
Three major forms in Canada • Sole proprietorship • Partnership • General • Limited • Corporation
• In other countries, corporations are also called joint stock companies, public limited companies and limited liability companies
SOLE PROPRIETORSHIP A business owned by a single individual | Advantages • Easiest to start • Least regulated • Single owner keeps all the profits • Taxed once as personal income | Disadvantages • Unlimited liability • Limited to life of owner • Equity capital limited to owner’s personal wealth • Difficult to sell ownership interest |
PARTNERSHIP A business formed by two or more co-owners | Advantages • Two or more owners • More human and financial capital available • Relatively easy to start • Income taxed once as personal income |