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Lecture 2 BF
Lecture 2 BF
(MGT 232)
Lecture 2
4-1
Business
Business Finance
Finance
Introduction
Introduction
(Role of Financial management (Cont..))
4-2
Overview of the Last Lecture
• What is Finance? And interrelated areas
• Financial Management
• Three Important FM decisions
• Goal of a Firm (some alternatives)
• Structure of a Modern Corporation
• Role of Management
• Organization of the Financial Management
4-3
Role of Management
4-4
Agency Theory
4-5
4-6
Agency Theory
• Agency relationship
• Agency conflict
• Agency cost
4-7
Agency Theory
4-8
Social Responsibility
4-9
Social Responsibility
4-10
Organization of the Financial
Management Function
Board of Directors
President
(Chief Executive Officer)
VP of Finance
Treasurer Controller
Capital Budgeting Cost Accounting
Cash Management Cost Management
Credit Management Data Processing
Dividend Disbursement General Ledger
Fin Analysis/Planning Government Reporting
Pension Management Internal Control
Insurance/Risk Mngmt Preparing Fin Stmts
Tax Analysis/Planning Preparing Budgets
Preparing Forecasts
4-12
The Business and Financial
Environments
4-13
The Business Environment
4-14
Sole Proprietorship
Advantages Disadvantages
• Simplicity • Unlimited liability
(single owner) • Hard to raise
• Low setup cost additional capital
• Quick setup • Transfer of
• Single tax filing on ownership difficulties
individual form
4-15
Unlimited Liability
• Unlimited liability means that owners can be
held personally accountable for a business's
debt
4-16
Partnership
4-17
Types of Partnerships
4-20
Summary for Corporation
Advantages Disadvantages
• Limited liability • Double taxation
• Easy transfer of • More difficult to
ownership establish
• Unlimited life • More expensive to
• Easier to raise large set up and maintain
quantities of capital
4-21
Limited Liability Company (LLC)
4-24
Summary
• Role of Management
• Agency Theory
• Social Responsibility
• Organization of the Financial Management
• Business Environment
• Tax Environment
• Financial Environment
4-25