Overview of Financial Management

Get Started. It's Free
or sign up with your email address
Overview of Financial Management by Mind Map: Overview of Financial Management

1. Forms of business organization

1.1. Proprietorship:

1.1.1. Unincorporated

1.1.2. One individual

1.1.3. Advantages Easily and inexpensively formed Subject to few government regulations Subject to lower income taxes

1.1.4. Disadvantages Unlimited personal liability Life of business is limited to life of individual Difficulty obtaining large sums of capital

1.2. Partnership

1.2.1. Unincorporated

1.2.2. 2 or more persons

1.2.3. Advantages Ease of formation More capital available Income taxed once as personal income Diversity of managerial expertise

1.2.4. Disadvantages Unlimited liability of the owner for debts Potential for conflict between partners Partnership dissolves when 1 partner dies or wishes to sell Difficult to transfer ownership

1.3. Corporation

1.3.1. Advantages Limited liability, unlimited life Separation of ownership and management Transfer of ownership is easy Easier to raise capital

1.3.2. Disadvantages Double taxation Income taxed at corporation rate Dividends taxed at personal rate (dividends paid are not tax deductible) Cost of set-up and report filing

1.3.3. S Corporation (<75 stockholders)

1.4. Limited Liability Company (LLC)

1.4.1. Hybrid a partnership and a corporation

1.5. Limited Liability Partnership (LLP)

1.5.1. Similar LLC

1.5.2. Accounting, law, architecture

2. What is Finance?

2.1. Finance vs Economics and Accounting

2.1.1. Economics: asset's value is based on future cash flows

2.1.2. Accounting: provided information those cash flow

2.2. Corporate finance, Capital markets, Investments

2.2.1. Corporate Finance (Financial management) Financing decision Investment decision Dividend decision

2.2.2. Capital markets Determine Interest rates Stock and bond prices

2.2.3. Investment Security ananlysis Portfolio theory Market analysis

2.3. Funds

2.3.1. Generate

2.3.2. Distribute

3. Stock prices and shareholder value

3.1. Shareholder Wealth Maximization

3.1.1. Maximize long-run value of firm's common stock

4. Intrinsic values, Stock prices, Executive compensation

4.1. Intrinsic value

4.2. Market price

4.3. Marginal investor

4.4. Equilibrium

4.5. Graph

4.5.1. Market Price > Intrinsic Value => Stock Overvalued => Shouldn't buy

4.5.2. Market Price < Intrinsic Value => Stock Undervalued => Should buy

5. Business Ethics

5.1. Company's attitude

5.2. Conduct toward its employees, customers, community, stockholders