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Principles of Corporate Finance
Brealey and Myers Sixth Edition
u Finance and the Financial Manager
Chapter 1
2
Topics Covered
w What Is A Corporation?
w The Role of The Financial Manager
w Who Is The Financial Manager?
w Separation of Ownership and Management
w Financial Markets
3
Corporate Structure
Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships
Limited Liability
Corporations Corporate tax on profits +
Personal tax on dividends
4
Role of The Financial Manager
(2) (1)
Firm's Financial Financial
(4a)
operations manager markets
(3) (4b)
(1) Cash raised from investors
(2) Cash invested in firm
(3) Cash generated by operations
(4a) Cash reinvested
(4b) Cash returned to investors
5
Who is The Financial Manager?
Chief Financial Officer
ptroller
6
Ownership vs. Management
Difference in Information Different Objectives
w Stock prices and w Managers vs.
returns stockholders
w Issues of shares and w Top mgmt vs.
other securities operating mgmt
w Dividends w Stockholders vs. banks
w Financing and lenders
7
Financial Markets
Money
Primary OTC
Markets Markets
Secondary
Markets
8
Financial Institutions
Company
Obligations
Funds
Intermediaries
Banks
Insurance Cos.
Brokerage Firms
9
Financial Institutions
Intermediaries
Obligations
Funds
Investors
Depositors
Policyholders
Investors