Managerial Finance Notes Chapters 1 3
Chapter One
LG1 - Define finance and the managerial finance function.
Finance is the science and art of managing money. Managerial finance: Raise money, invest money, and distribute money.
LG2 - Describe the legal forms of business organization.
A sole proprietorship is a business owned by one person and operated for his or her own profit.
(73%)
A partnership is business owned by two or more people and operated for profit. (7%)
A corporation is an entity created by law. Corporations have the legal powers of an individual in that can sue and be sued, make and be party to contracts and acquire property in its own name.
(20%)
LG3 - Describe the goal of the firm, and explain why maximizing the value of the firm is an appropriate goal for a business.
Profit maximization may not lead to the highest possible share price for at least three reasons
Timing is important – the receipt of funds sooner rather than later is preferred.
Profits do not necessarily result in cash flows available to stockholders.
Profit maximization fails to account for risk.
Therefore, wealth maximization and long term sustainability are important
LG4 - Describe how the managerial finance function is related to economics and accounting.
•
The firm’s finance and accounting activities are closely-related and generally overlap.
•
In small firms accountants often carry out the finance function, and in large firms financial analysts often help compile accounting information.
•
One major difference in perspective and emphasis between finance and accounting is that accountants generally use the accrual method while in finance, the focus is on cash flows.
•
Whether a firm earns a profit or experiences a loss, it must have a sufficient flow of cash to meet its obligations as they come due.
LG5 - Identify the primary activities of the financial manager.
Finance managers perform the duties of a manger who manages the finance in a business. You work for one business.
LG6 -
LG1 - Define finance and the managerial finance function.
Finance is the science and art of managing money. Managerial finance: Raise money, invest money, and distribute money.
LG2 - Describe the legal forms of business organization.
A sole proprietorship is a business owned by one person and operated for his or her own profit.
(73%)
A partnership is business owned by two or more people and operated for profit. (7%)
A corporation is an entity created by law. Corporations have the legal powers of an individual in that can sue and be sued, make and be party to contracts and acquire property in its own name.
(20%)
LG3 - Describe the goal of the firm, and explain why maximizing the value of the firm is an appropriate goal for a business.
Profit maximization may not lead to the highest possible share price for at least three reasons
Timing is important – the receipt of funds sooner rather than later is preferred.
Profits do not necessarily result in cash flows available to stockholders.
Profit maximization fails to account for risk.
Therefore, wealth maximization and long term sustainability are important
LG4 - Describe how the managerial finance function is related to economics and accounting.
•
The firm’s finance and accounting activities are closely-related and generally overlap.
•
In small firms accountants often carry out the finance function, and in large firms financial analysts often help compile accounting information.
•
One major difference in perspective and emphasis between finance and accounting is that accountants generally use the accrual method while in finance, the focus is on cash flows.
•
Whether a firm earns a profit or experiences a loss, it must have a sufficient flow of cash to meet its obligations as they come due.
LG5 - Identify the primary activities of the financial manager.
Finance managers perform the duties of a manger who manages the finance in a business. You work for one business.
LG6 -