Financial Planning

25 January 2005

Smaller businesses

- can run on cash basis

- accrual accounting not required

Chapter 1 (p. 3)

What is Finance?

- financial management is concerned with maintenance and creation of economic value or wealth

Goal of the firm

- goal = maximization of shareholder wealth

- Profit maximization insufficient

Legal forms of business organization (p. 7)

- Sole proprietorship

- business owned by a single individual

- partnership = association of 2 or more individuals joining as co-owners to operate a business for profit

- general partnership

- limited partnersip and limited liability company

- cross between partnership and corporation

- corporation

- legally functions separate and apart from its owners

- easier to raise capital because of liability limitations

The Role of the Financial manager in a Corporation

- CFO = financial planner

- treasurer & controller serve beneat

- trasurer handles firms financial activities

- cash/credit mgmt

- raise funds, manage currency, plan finance

- controller manages ccounting duties

- cost accounting, produce statements, pay taxes, gather/monitor data

Corporation and Financial markets: interaction (p. 11)

- Primary markets: cash for securities

- market in which new securities are traded

- IPO: first time company's stock is sold

- Corporation invests in return-generating assets

- cash flow from operations

- cash distributed back to investors

- cash reinvested in corporation

- taxes

- Secondary market

- market in which stock previously issued by firm trades

- stock offerings by companies that alrady have common stock traded

10 Principles that Form Basics of Financial Management (p. 13)

1) risk-return trade-off

- no additional risk unless expect to be compensated with additional return

2) time value of money

- dollar received today is worth more than a dollar received in the future

3) Cash, not profit, is king

- cash flows,...