Overview of Financial Management

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Overview of Financial Management by Mind Map: Overview of Financial Management

1. What is Finance?

1.1. Finance vs Economics and Accounting

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

1.1.2. Accounting: provided information those cash flow

1.2. Corporate finance, Capital markets, Investments

1.2.1. Corporate Finance (Financial management)

1.2.1.1. Financing decision

1.2.1.2. Investment decision

1.2.1.3. Dividend decision

1.2.2. Capital markets

1.2.2.1. Determine

1.2.2.1.1. Interest rates

1.2.2.1.2. Stock and bond prices

1.2.3. Investment

1.2.3.1. Security ananlysis

1.2.3.2. Portfolio theory

1.2.3.3. Market analysis

1.3. Funds

1.3.1. Generate

1.3.2. Distribute

2. Forms of business organization

2.1. Proprietorship:

2.1.1. Unincorporated

2.1.2. One individual

2.1.3. Advantages

2.1.3.1. Easily and inexpensively formed

2.1.3.2. Subject to few government regulations

2.1.3.3. Subject to lower income taxes

2.1.4. Disadvantages

2.1.4.1. Unlimited personal liability

2.1.4.2. Life of business is limited to life of individual

2.1.4.3. Difficulty obtaining large sums of capital

2.2. Partnership

2.2.1. Unincorporated

2.2.2. 2 or more persons

2.2.3. Advantages

2.2.3.1. Ease of formation

2.2.3.2. More capital available

2.2.3.3. Income taxed once as personal income

2.2.3.4. Diversity of managerial expertise

2.2.4. Disadvantages

2.2.4.1. Unlimited liability of the owner for debts

2.2.4.2. Potential for conflict between partners

2.2.4.3. Partnership dissolves when 1 partner dies or wishes to sell

2.2.4.4. Difficult to transfer ownership

2.3. Corporation

2.3.1. Advantages

2.3.1.1. Limited liability, unlimited life

2.3.1.2. Separation of ownership and management

2.3.1.3. Transfer of ownership is easy

2.3.1.4. Easier to raise capital

2.3.2. Disadvantages

2.3.2.1. Double taxation

2.3.2.1.1. Income taxed at corporation rate

2.3.2.1.2. Dividends taxed at personal rate (dividends paid are not tax deductible)

2.3.2.2. Cost of set-up and report filing

2.3.3. S Corporation (<75 stockholders)

2.4. Limited Liability Company (LLC)

2.4.1. Hybrid a partnership and a corporation

2.5. Limited Liability Partnership (LLP)

2.5.1. Similar LLC

2.5.2. Accounting, law, architecture

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