Principles of Corporate Finance

Brealey and Myers Sixth Edition

 Finance and the Financial Manager

Slides by
Matthew Will Chapter 1
Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000
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Topics Covered
 What Is A Corporation?
 The Role of The Financial Manager
 Who Is The Financial Manager?
 Separation of Ownership and Management
 Financial Markets

Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000

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Corporate Structure

Sole Proprietorships

Partnerships

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Corporate Structure

Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships

Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000

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Corporate Structure

Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships

Corporations

Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000

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Corporate Structure

Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships

Limited Liability
Corporations Corporate tax on profits +
Personal tax on dividends

Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000

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Role of The Financial Manager

(1)

Firm's Financial Financial

operations manager markets

(1) Cash raised from investors

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Role of The Financial Manager

(2) (1)

Firm's Financial Financial

operations manager markets

(1) Cash raised from investors

(2) Cash invested in firm

Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000

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Role of The Financial Manager

(2) (1)

Firm's Financial Financial

operations manager markets

(3)

(1) Cash raised from investors

(2) Cash invested in firm
(3) Cash generated by operations

Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000

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Role of The Financial Manager

(2) (1)

Firm's Financial Financial

(4a)
operations manager markets

(3)

(1) Cash raised from investors

(2) Cash invested in firm
(3) Cash generated by operations
(4a) Cash reinvested

Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000

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Role of The Financial Manager

(2) (1)

Firm's Financial Financial

(4a)
operations manager markets

(3) (4b)

(1) Cash raised from investors

(2) Cash invested in firm
(3) Cash generated by operations
(4a) Cash reinvested
(4b) Cash returned to investors

Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000

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Who is The Financial Manager?

Chief
ChiefFinancial
FinancialOfficer
Officer

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Who is The Financial Manager?

Chief
ChiefFinancial
FinancialOfficer
Officer

Treasurer Comptroller

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Ownership vs. Management

Difference in Information Different Objectives

 Stock prices and returns  Managers vs.

 Issues of shares and stockholders
other securities  Top mgmt vs. operating
 Dividends mgmt
 Financing  Stockholders vs. banks
and lenders

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Financial Markets

Money

Primary
Markets

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Financial Markets

Money

Primary
Markets
Secondary
Markets
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Financial Markets

Money

Primary OTC
Markets Markets
Secondary
Markets
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Financial Institutions
Company

Obligations
Funds

Intermediaries
Banks
Insurance Cos.
Brokerage Firms
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Financial Institutions
Intermediaries

Obligations
Funds

Investors
Depositors
Policyholders
Investors
Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 2000