©2012 McGraw-Hill Ryerson Limited 1 of 22 Learning Objectives 4.Debate alternative goals of the firm on the basis of social or management interest. (LO4) 5.Identify financial manager functions connected to the raising and investing of funds. (LO5) 6.Outline the role of financial markets in allocating capital, determining value and establishing yields. (LO6)

©2012 McGraw-Hill Ryerson Limited 2 of 22 Functions of Financial Management The study of finance has a variety of functions -Corporate finance -Banking -Securities trading and underwriting -Money management -Financial planning -Risk management (insurance) Some of these functions are performed on a daily basis and others are less routine. All these functions are carried out with the intention to proper balance profitability against risk. LO5

©2012 McGraw-Hill Ryerson Limited 3 of 22 Trade-off Daily Cash management (receipt and disbursement of funds) Credit management Inventory control Short-term financing Exchange and interest rate hedging Bank relations Intermediate financing Bond issues Leasing Stock issues Capital budgeting Dividend decisions Forecasting Profitability/Return Risk Goal: Maximize shareholder wealth Figure 1-1 Functions of the Financial Manager Occasional LO5

©2012 McGraw-Hill Ryerson Limited 4 of 22 Forms of Organization Sole Proprietorship (one owner) - largest in actual number but smallest in total sales revenue Partnership - (two or more owners) Corporation (legal entity unto itself) - smallest in actual number but largest in total sales revenue LO5

©2012 McGraw-Hill Ryerson Limited 5 of 22 A business owned by one person Forms of Organization: Sole Proprietorships LO5 Advantages Freedom Simplicity Low Starting Costs Tax Benefits Disadvantages Unlimited Liability Lack of Continuity Difficult to raise money Reliance on one person

©2012 McGraw-Hill Ryerson Limited 6 of 22 A business owned by two or more persons Forms of Organization: Partnerships LO5 Advantages More Capital Greater Talent Pool Ease of Formation Tax Benefits Disadvantages Unlimited Liability Lack of Continuity Ownership transfer is difficult Possibility of Conflicts

©2012 McGraw-Hill Ryerson Limited 7 of 22 A corporation is a separate legal entity Forms of Organization: Corporations LO5 Advantages Limited Liability Continuity Greater Likelihood of Professional Management Easier Access to Capital Disadvantages Higher Start-Up Costs More Regulations Double Taxation Potential Shareholder Conflicts