Beruflich Dokumente
Kultur Dokumente
FINANCIAL MANAGEMENT
(Chapter 1)
Economics Accounting
Finance
Security Analysis
Portfolio Management
MGMT 135
MGMT 136
Financial Markets
Wealth Maximization
Maximize the wealth of the firm’s existing
common stockholders
Wealth Defined
Market Value of the firm’s common stock
(Price per share)(number of shares)
Goal of the Firm
(Continued)
Factors Affecting Price Per Share
Earnings per share (EPS)
Price/Earnings Ratio
Timing of EPS
Risk
Problem With Earnings Maximization
Ignores many of the important variables that
impact on the stockholders’ well being (i.e..,
wealth)
Agency Problem
Stockholders Versus Managers
Managers, in light of their self interest, may
at times make decisions that are not oriented
towards maximizing stockholder wealth. This
does not, however, invalidate the goal itself.
Incentives for management to act in the
stockholders’ best interest
Threat of being fired - PERS is quite active
Hostile takeover if stock price is too low
Performance based salaries
Business Ethics
Ethics Defined
Standards of conduct and moral judgment
Unethical conduct may be obvious at times.
Insider Trading
Ethical dilemmas, however, can also exist.
Profits and ethics sometimes conflict
Often there is no clear-cut right or wrong answer
Forms of Business
Organization
Sole Proprietorship
About 75% of all firms
Partnership
Corporation
About 90% of all sales dollars
Sole Proprietorship
A single owner
Unlimited liability
Taxed at personal income tax rates
Easiest and least expensive to establish
Market value of firm difficult to estimate
Difficult to raise equity capital
Partnership
Limited partnership
Liability limited to investment
Subchapter S Corporation
Shareholders enjoy limited liability, but income
is taxed at personal income rates.
Globalization