chapter 1

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CHAPTER 1 The Goals and Functions of Financial Management

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An overview of financial management

Intrinsic values, stock prices, and executive compensation

Equilibrium: The situation in which the actual market price equals the intrinsic value, so investor are different between buyying or selling a stock

Marginal Investor: An investor whose veiws determine the actual stock price

Maret Price: The stock value based on perceived but possibly incorrect information as see by the marginal investor

Intrinsic Value: An estimate of a stock's "true" value base on accurate risk and return data

Forms of business organization

Limited Liability Partnership (LLP): similar to LLC but used professionally in accounting, law, architecture

Limited Liability Company (LLC): an organization that hybrid between a partnership and a corporatin

Corporation: a legal entity created by a state, separate and distinct from its owners and managers

C corporations: more than 75 stockholders

S corporations: no more than 75 stockholders

Partnership: an unincorporated owned by two or more people

Proprietorship: an unincorporated business owned by one individual

Business ethics

A Company's attitude and condutct toward its employees, customers, communityy, and stockholders

Stock prices and shareholder value

Primary goal for managers: maximize the long-run of the firm's common stock

What is financial?

Corporate Finance, Capital Marets, and Investments

Investment relates to decision concerning stock and bond

Market analysis

Portfolio theory

Security analysis

Capital market relates to interest rates, stock and bond prices

Corporate finance = Financial management, focus on assets, capital, and maximizing value

Finance versus economics and accounting

Accountants provided information size of those cash flows

Economists developed an asset's value based on the future cash flows