Principles of Corporate Finance
Brealey and Myers
Sixth Edition
Finance and the Financial Manager
Slides by
Matthew Will
Irwin/McGraw Hill
Chapter 1
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Topics Covered
What Is A Corporation?
The Role of The Financial Manager
Who Is The Financial Manager?
Separation of Ownership and Management
Financial Markets
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Corporate Structure
Sole Proprietorships
Partnerships
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Corporate Structure
Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships
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Corporate Structure
Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships
Corporations
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©The McGraw-Hill Companies, Inc., 200
1- 6
Corporate Structure
Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships
Limited Liability
Corporations
Corporate tax on profits +
Personal tax on dividends
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Role of The Financial Manager
(1)
Firm's
operations
Financial
manager
Financial
markets
(1) Cash raised from investors
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Role of The Financial Manager
(2)
Firm's
operations
(1)
Financial
manager
Financial
markets
(1) Cash raised from investors
(2) Cash invested in firm
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Role of The Financial Manager
(2)
(1)
Financial
manager
Firm's
operations
Financial
markets
(3)
(1) Cash raised from investors
(2) Cash invested in firm
(3) Cash generated by operations
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Role of The Financial Manager
(2)
(1)
Financial
manager
Firm's
operations
(4a)
Financial
markets
(3)
(1) Cash raised from investors
(2) Cash invested in firm
(3) Cash generated by operations
(4a) Cash reinvested
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Role of The Financial Manager
(2)
(1)
Financial
manager
Firm's
operations
(4a)
Financial
markets
(4b)
(3)
(1) Cash raised from investors
(2) Cash invested in firm
(3) Cash generated by operations
(4a) Cash reinvested
(4b) Cash returned to investors
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Who is The Financial Manager?
Chief
ChiefFinancial
FinancialOfficer
Officer
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Who is The Financial Manager?
Chief
ChiefFinancial
FinancialOfficer
Officer
Treasurer
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Comptroller
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Ownership vs. Management
Difference in Information
Different Objectives
Stock prices and returns Managers vs.
stockholders
Issues of shares and
Top mgmt vs. operating
other securities
mgmt
Dividends
Stockholders vs. banks
Financing
and lenders
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Financial Markets
Money
Primary
Markets
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Financial Markets
Money
Primary
Markets
Secondary
Markets
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Financial Markets
Money
Primary
OTC
Markets
Markets
Secondary
Markets
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Financial Institutions
Company
Obligations
Funds
Intermediaries
Banks
Insurance Cos.
Brokerage Firms
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Financial Institutions
Intermediaries
Obligations
Funds
Investors
Depositors
Policyholders
Investors
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