Bài giảng Management theory and practice Financial: Chapter 1

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Bài giảng Management theory and practice Financial: Chapter 1PowerPoint Presentation prepared by Traven Reed Canadore College Chapter 1An Overview of Financial Management and the Financial Environment Topics in ChapterCH1 • Attributes of successful companies • Forms of business organization • Objective of the firm: maximize wealth • Determinants of fundamental value • Financial securities, financial institutions, and financial markets Copyright © 2011 by Nelson Education Ltd. 1-3 Attributes of Successful CompaniesCH1 • Like a stool needs all three legs to stand, a successful business relies on: – Skilled people – Strong external relationship – Sufficient capital Copyright © 2011 by Nelson Education Ltd. 1-4 The Corporate Life CycleCH1 • No two companies will develop in exactly the same way • A business usually begins as a small potato and hopefully finishes up as a major giant • Structures of business organizations: – Sole proprietorship – Partnership – Corporation – Income trust Copyright © 2011 by Nelson Education Ltd. 1-5 Starting as a ProprietorshipCH1 • Advantages: – Ease of formation – Subject to few regulations – No corporate income taxes • Disadvantages: – Difficult to raise capital to support growth – Unlimited liability – Limited life span Copyright © 2011 by Nelson Education Ltd. 1-6 Starting as or Growing into a PartnershipCH1 • A partnership involves two or more entities with various privileges and responsibilities – General vs. limited partner – Limited liability partnership • A partnership has roughly the same advantages and disadvantages as a sole proprietorship. Copyright © 2011 by Nelson Education Ltd. 1-7 Becoming a CorporationCH1 • A corporation is a legal entity separate from its owners and managers. • File papers and prepare reports with Corporation Canada. – Articles of incorporation – Bylaws Copyright © 2011 by Nelson Education Ltd. 1-8 Advantages and Disadvantages of a CorporationCH1 • Advantages: – Unlimited life – Easy transfer of ownership – Limited liability – Ease of raising capital • Disadvantages: – Double taxation – Higher setup cost – Endless report filing Copyright © 2011 by Nelson Education Ltd. 1-9 A Unique Twist: Income TrustsCH1 • Expand 100 times to a market capitalization of $192 billion from 1994 to 2007 • Growth ends as government has announced plans in 2006 to tax trusts at the same rate as corporations • In the past, income trust cash distributions are only taxed in the hands of investors, not at the firm level • Investors see trusts as tax-efficient and are willing to pay more for a company converted to a trust Copyright © 2011 by Nelson Education Ltd. 1- What should be management’s primary objective?CH1 • The primary objective should be shareholder wealth maximization, which translates to maximizing the fundamental share price, not just the current market price. • Should firms behave ethically? YES! • Business ethics are a company’s attitude and conduct toward its employees, customers, community and shareholders Copyright © 2011 by Nelson Education Ltd. 1- Stock Price Maximization andCH1 Social Welfare • Do firms have any responsibilities to society at large? Yes! • Unethical behavior destroys public trust and confidence. • Maximizing share price is good for society. Why? • Shareholders are also members of society. Copyright © 2011 by Nelson Education Ltd. 1- Is Maximizing stock priceCH1 good for consumers? • Consumer welfare is higher in ...