Ch 4 Long- and Short-Term Financial Planning - Corporate Finance (COF) (AIF) - Principles of Managerial Finance
Ch 5 Time Value of Money - Corporate Finance (COF) (AIF) - Principles of Managerial Finance
All for this textbook (13)
Written for
Hanzehogeschool Groningen (Hanze)
International Business and Management Studies
COF
All documents for this subject (10)
Seller
Follow
amy5430
Reviews received
Content preview
The Role of Managerial Finance
Chapter Number Chapter 1
Subject COF
The Role of Managerial Finance 1
, 📖 Table of Contents
Outline
1.1 Finance and the Firm
WHAT IS THE GOAL OF THE FIRM?
Maximize Shareholder Wealth
Maximize Profit?
Maximize Stakeholders’ Welfare?
THE ROLE OF BUSINESS ETHICS
1.2 Managing the Firm
THE MANAGERIAL FINANCE FUNCTION
Financial Managers’ Key Decisions
Principles That Guide Managers’ Decisions
Organization of the Finance Function
Relationship to Economics
1.3 Organization Forms, Taxation, and the Principal-Agent Relationship
LEGAL FORMS OF BUSINESS ORGANIZATION
Business Organizational Forms and Taxation
Other Limited Liability Organizations
AGENCY PROBLEMS AND AGENCY COSTS
CORPORATE GOVERNANCE
Internal Corporate Governance Mechanisms
External Corporate Governance Mechanisms
1.1 Finance and the Firm
📍 Finance is the science and art of how individuals and firms raise, allocate,
and invest
money.
📍 Managerial finance is concerned with the responsibilities of a financial
manager working in a business.
WHAT IS THE GOAL OF THE FIRM?
Maximize Shareholder Wealth
The Role of Managerial Finance 2
, The simplest and best measure of stockholder wealth is the share price.
Enriching shareholders requires managers to first satisfy the demands of these other
interest groups —> Dividends ultimately received by stockholders come from the
firm’s profits.
To determine whether a particular course of action will increase or decrease
shareholders’ wealth, managers have to assess what return (i.e., cash inflows net of
cash out-flows) and risk (i.e., the uncertainty of the net cash flows) the action will
bring.
Maximize Profit?
Corporations commonly measure profits in terms of earnings per share (EPS)
📍 Earnings Per Share (EPS): The amount earned during the period on
behalf of each outstanding share of stock. Calculated by dividing the
period’s total earnings available for the firm’s stockholders by the number
of shares of stock outstanding.
Figure 1.1
Reasons why profit maximization doesn’t always lead to the highest possible share
price
1. Timing: An investment that provides a small profit quickly may be preferable to
one that produces a larger profit if that profit comes in the distant future.
2. Cash Flows: Profits do not necessarily result in cash flows available to
stockholders. The accounting assumptions and techniques that a firm adopts
can sometimes allow it to show a positive profit even when its cash outflows
exceed cash inflows.
3. Risk: Profit maximization also fails to account for risk, the chance that actual
outcomes may differ from those expected. Investors demand higher returns on
The Role of Managerial Finance 3
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller amy5430. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.05. You're not tied to anything after your purchase.
