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Boundless Finance
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Chapter 1

Introduction to the Field and Goals of Financial Management

Book Version 3
By Boundless
Boundless Finance
Finance
by Boundless
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Section 1
Introducing Finance
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Defining Finance

Finance is the study of fund management and asset allocation over time.

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Comparing the Fields of Finance, Economics, and Accounting

Finance, economics, and accounting are business subjects with many similarities and differences; each is a distinct field of study.

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Role of Finance in an Organization

The primary role of corporate finance is to determine how best to maximize shareholder value.

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Types of Financial Decisions: Investment and Financing

Investment and financing decisions boil down to how to spend money and how to borrow money.

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Functions of Corporate Finance

Corporate finance utilizes tools and analysis to make sound financial business decisions.

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Overview of the Role of Financial Manager

The financial manager is responsible for budgeting, projecting cash flows, and determining how to invest and finance projects.

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Reasons to Study Finance

Finance is relevant to all business functions, the macroeconomy, and personal finances.

Section 2
Goals of Financial Management
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Valuation

Valuation, a goal of financial management, often relies on fundamental analysis of financial statements.

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Maximizing Shareholder and Market Value

A goal of financial management can be to maximize shareholder wealth by paying dividends and/or causing the market value to increase.

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Maximizing Value Without Harming Stakeholders

A goal of financial management can be to maximize value without harming stakeholders, the diverse set of parties affected by the business.

Section 3
Trends and Issues in Finance
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Current Issues in Finance

Current issues in finance include the economic and regulatory impacts of the financial crisis and the growth of new types of finance.

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Employment in Finance

The financial sector is a large field offering many different types of employment for a broad range of organizations that manage money.

Section 4
Ethics: An Overview
Defining Ethics

Ethics are the set of moral principles that guide a person's behavior.

Ethics Training

Moral reasoning is the process in which an individual tries to determine what is right and what is wrong.

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Culture and Ethics

Culture reflects the moral values and ethical norms governing how people should behave and interact with others.

The Manager's Role in Ethical Conduct

Employees can more easily make ethical decisions that promote a company's values when their personal values match the company's norms.

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Blurring Ethical Lines

Ethical decisions involve judgments of facts and situations that are subject to interpretation and other influences.

Section 5
Types of Business Organizations
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Overview of Organizational Structure

Business organizations can be structured in various ways, both as legal entities and in terms of internal management processes.

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Pros and Cons of Sole Proprietorship

The sole proprietorship structure has the benefit of simplicity and control but the drawback of unlimited liability.

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Pros and Cons of a Partnership

The partnership structure has the benefit of simplicity and control but the drawback of personal liability for the partnership's activities.

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Pros and Cons of a Corporation

The corporate structure is less simple to found and maintain but has the advantages of limited liability and perpetual life.

Section 6
Corporate Governance
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Defining Corporate Governance

Corporate governance is the system by which companies are directed and controlled.

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Sarbanes–Oxley Act of 2002

The Sarbanes–Oxley Act is a US federal law enhancing standards for all US public company boards, management and public accounting firms.

Section 7
Agency and Conflicts of Interest
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Defining Agency Conflicts

Agency conflicts can occur when the incentives of the agent do not align with those of the principal.

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Managers, Shareholders, and Bondholders

Three parties key to the corporation's functioning are managers, shareholders, and bondholders, each of which can have different interests.

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Conflicts Between Managers and Shareholders

Agency costs mainly occur when ownership is separated, or when managers have objectives other than shareholder value maximization.

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Conflicts of Interest Between Shareholders and Bondholders

The shareholders and bondholders have different rights and returns, leading to potential conflicts of interest.

Section 8
Asset Classes
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Cash

Cash, the most liquid asset, refers to physical currency such as banknotes and coins.

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Debt

A debt is an obligation owed by one party (the debtor) to a second party (the creditor).

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Stocks

The capital stock (or stock) of a business entity represents the original capital paid into or invested in the business by its founders.

Section 9
Financial Markets
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Types of Financial Markets

Financial markets are of many types, including general and specialized; capital and money; and primary and secondary.

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Role of Financial Markets in Capital Allocation

One of the main functions of financial markets is to allocate capital, matching those who have capital to those who need it.

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Role of Financial Markets in Providing Feedback to Management

Financial markets can provide feedback to management by showing signals of the demand to supply funds to that enterprise.

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Trends in Markets

A market trend is a putative tendency of a financial market to move in a particular direction over time.

You are in this book
Boundless Finance by Boundless
Current Chapter
Chapter 1
Introduction to the Field and Goals of Financial Management
  • Introducing Finance
  • Goals of Financial Management
  • Trends and Issues in Finance
  • Ethics: An Overview
  • Types of Business Organizations
and 4 more sections...
Next Chapter
Chapter 2
Financial Statements, Taxes, and Cash Flow
  • Introducing Financial Statements
  • The Income Statement
  • The Balance Sheet
  • Tax Considerations
  • The Statement of Cash Flows
and 1 more sections...
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