Unit 2- Finance in the Business Environment Flashcards
What are the roles of the corporate finance department?
Value profitability, preparing budgets, determining whether to pay dividends
Three central components of business ethics
personal, professional, corporate
Responsibilities of a financial manager
project profitability, managing budget, ensuring enough cash to pay financial obligations
Who maintains the financial system
Accountant
Financial manager requirements
understanding of the business’s long-term strategy, grasp of business’s accounting system, ability to calculate the cost of investing in an activity
Why do business managers try to increase market price?
increase shareholder value- if business’s value increases, the shareholder value increases
Stakeholder
anyone who has an interest in the success of the business- employees, shareholders, managers, suppliers, etc.
Sole proprietorship
Smallest type of business- easiest to start, uninterrupted control, ease of filing taxes, personally liable
Partnership
2 or more owners, personally liable, equally-shared profits, business doesn’t pay taxes- owners do
LLC
limited liability company, any number of members, no personal liability, members pay on individual tax returns- business doesn’t pay taxes, may be dissolved due to death or bankruptcy
Corporation
External funding from shareholders, limited liability, perpetual life, can be difficult to found and maintain, double taxation, easily-transferrable ownership
Valuation process
analyzing the company’s financial statements to help determine the company’s valuation
Types of businesses
Sole proprietorship, Partnership, LLC, Corporation
Principal- Agent Problem
The principal (shareholder) and agent (manager) have different views on what’s best for the company
Main function of financial market
Match those who need capital with those who have capital
