Finance Chapter 1
1.1
The Role of The Financial Manager
LEARNING OBJECTIVE 1
Identify the key financial decisions facing the financial manager of any business firm.
The financial manager is responsible for making decisions that are in the best interests of the firm's owners, whether the firm is a start-up business with a single owner or a billion-dollar corporation owned by thousands of stockholders. The decisions made by the financial manager or owner should be one and the same. In most situations this means that the financial manager should make decisions that maximize the value of the owners' stock. This helps maximize the owners' wealth. Our underlying assumption in this book is that most people who invest in businesses do so because they want to increase their wealth. In the following discussion, we describe the responsibilities of the financial manager in a new business in order to illustrate the types of decisions that such a manager makes.
Stakeholders
Before we discuss the new business, you may want to look at Exhibit 1.1, which shows the cash flows between a firm and its owners (in a corporation, the stockholders) and various stakeholders. Astakeholder is someone other than an owner who has a claim on the cash flows of the firm: managers, who want to be paid salaries and performance bonuses; other employees, who want to be paid wages;suppliers, who want to be paid for goods or services; the government, which wants the firm to pay taxes; and creditors, who want to be paid interest and principal. Stakeholders may have interests that differ from those of the owners. When this is the case, they may exert pressure on management to make decisions that benefit them. We will return to these types of conflicts of interest later in the book. For now, though, we are primarily concerned with the overall flow of cash between the firm and its stockholders and stakeholders.
EXHIBIT 1.1
Cash Flows Between the Firm and Its Stakeholders and Owners (Stockholders)
A.
Making
The Role of The Financial Manager
LEARNING OBJECTIVE 1
Identify the key financial decisions facing the financial manager of any business firm.
The financial manager is responsible for making decisions that are in the best interests of the firm's owners, whether the firm is a start-up business with a single owner or a billion-dollar corporation owned by thousands of stockholders. The decisions made by the financial manager or owner should be one and the same. In most situations this means that the financial manager should make decisions that maximize the value of the owners' stock. This helps maximize the owners' wealth. Our underlying assumption in this book is that most people who invest in businesses do so because they want to increase their wealth. In the following discussion, we describe the responsibilities of the financial manager in a new business in order to illustrate the types of decisions that such a manager makes.
Stakeholders
Before we discuss the new business, you may want to look at Exhibit 1.1, which shows the cash flows between a firm and its owners (in a corporation, the stockholders) and various stakeholders. Astakeholder is someone other than an owner who has a claim on the cash flows of the firm: managers, who want to be paid salaries and performance bonuses; other employees, who want to be paid wages;suppliers, who want to be paid for goods or services; the government, which wants the firm to pay taxes; and creditors, who want to be paid interest and principal. Stakeholders may have interests that differ from those of the owners. When this is the case, they may exert pressure on management to make decisions that benefit them. We will return to these types of conflicts of interest later in the book. For now, though, we are primarily concerned with the overall flow of cash between the firm and its stockholders and stakeholders.
EXHIBIT 1.1
Cash Flows Between the Firm and Its Stakeholders and Owners (Stockholders)
A.
Making