BUS650 Week 1
BUS650: Managerial Finance
Professor Leon Daniel Jr.
August 26, 2013
According to Gitman, the goal of the firm, and therefore of all managers and employees, is to maximize the wealth of the owners for whom it is being operated (2009). The financial manager is responsible for acquiring sources of financing and allocate amongst competitive investment alternatives. The ultimate goal is to invest in projects yielding higher returns than amount of financing used to invest, so profits can be used satisfy claims and increase shareholder wealth. The issues facing financial managers are therefore to 1) increase sources of financing from investors and 2) increase shareholder wealth while maintaining a balance of short term and long term profit. When potential investors look for organizations to invest in, they access the environmental conditions in which they operate. Market structure, the degree of competition, liquidity, and the level of market efficiency all affect the value of an organization, which in turn affect investors willingness to invest in the company. The degree of competition in the environment in which these firms operate have an effect on financial institutions' decision to invest. In perfect competition, where there are many sellers, no product differentiation and no barriers to entry and exit (Byrd, J., Hickman, K., & McPherson, M., 2013). Customers can easily substitute items from one producer, basing their decision on price. The high degree of product substitution drives the selling price down to marginal cost of production, therefore producers only earn a normal profit (Byrd, J., Hickman, K., & McPherson, M., 2013). Perfectly competitive markets have the same degree of efficiency as efficient financial markets, in which participants only earn a normal profit; therefore, corporations are likely to offer less potential profit to investors; Given, there is no incentive for lenders to invest in
Professor Leon Daniel Jr.
August 26, 2013
According to Gitman, the goal of the firm, and therefore of all managers and employees, is to maximize the wealth of the owners for whom it is being operated (2009). The financial manager is responsible for acquiring sources of financing and allocate amongst competitive investment alternatives. The ultimate goal is to invest in projects yielding higher returns than amount of financing used to invest, so profits can be used satisfy claims and increase shareholder wealth. The issues facing financial managers are therefore to 1) increase sources of financing from investors and 2) increase shareholder wealth while maintaining a balance of short term and long term profit. When potential investors look for organizations to invest in, they access the environmental conditions in which they operate. Market structure, the degree of competition, liquidity, and the level of market efficiency all affect the value of an organization, which in turn affect investors willingness to invest in the company. The degree of competition in the environment in which these firms operate have an effect on financial institutions' decision to invest. In perfect competition, where there are many sellers, no product differentiation and no barriers to entry and exit (Byrd, J., Hickman, K., & McPherson, M., 2013). Customers can easily substitute items from one producer, basing their decision on price. The high degree of product substitution drives the selling price down to marginal cost of production, therefore producers only earn a normal profit (Byrd, J., Hickman, K., & McPherson, M., 2013). Perfectly competitive markets have the same degree of efficiency as efficient financial markets, in which participants only earn a normal profit; therefore, corporations are likely to offer less potential profit to investors; Given, there is no incentive for lenders to invest in
References: Adetunji, J. (2011). Short-term Profit can be Dwarfed by Long-Term Losses. Retrieved on 8/22, from website: http://www.theguardian.com/sustainable-business/short-term-profit-long-term-losses Allen, F. (1993). Strategic Management and Financial Markets. Retrieved on 8/23/2013, from website: http://finance.wharton.upenn.edu/~allenf/download/Vita/stratman.pdf Claessens, S. (2009). Competition in the Financial Sector: Overview of Competition Policies. Retrieved on 8/22/2013, from website: http://www.imf.org/external/pubs/ft/wp/2009/wp0945.pdf Gitman, L. (2009) Principles of Managerial Finance. Retrieved on 8/24/2013, from website: http://wps.pearsoncustom.com/wps/media/objects/2426/2484581/FIN101_Ch01.pdf Investopedia (n.d.). Definition of Triple Bottom Line. Retrieved on 8/22/2013, from website: http://www.investopedia.com/terms/t/triple-bottom-line.asp