Principles of Finance - Finance - Lecture Slides, Slides of Finance

Download Principles of Finance - Finance - Lecture Slides and more Slides Finance in PDF only on Docsity! Principles of Finance Docsity.com Overview 1.What is Finance 2.Three Types of Business Organizations 3.The Goal of the Financial Manager 4.The Four Basic Principles of Finance Docsity.com Three Types of Business Organizations Business Forms Sole Proprietorships Partnerships Corporations Hybrids Docsity.com Sole Proprietorship • It is a business owned by a single individual that is entitled to all the firm’s profits and is responsible for all the firm’s debt. • There is no separation between the business and the owner when it comes to debts or being sued. • Sole proprietorships are generally financed by personal loans from family and friends and business loans from banks. • Advantages: – Easy to start – No need to consult others while making decisions – Taxed at the personal tax rate • Disadvantages: – Personally liable for the business debts – Ceases on the death of the proprietor Docsity.com Partnership • A general partnership is an association of two or more persons who come together as co-owners for the purpose of operating a business for profit. • There is no separation between the partnership and the owners with respect to debts or being sued. • Advantages: – Relatively easy to start – Taxed at the personal tax rate – Access to funds from multiple sources or partners • Disadvantages: – Partners jointly share unlimited liability Docsity.com Corporation Pros & Cons • Advantages – Liability of owners limited to invested funds – Life of corporation is not tied to the owner – Easier to transfer ownership – Easier to raise Capital • Disadvantages – Greater regulation – Double taxation of dividends Docsity.com Hybrid Organizations • These organizational forms provide a cross between a partnership and a corporation. • Limited liability company (LLC) combines the tax benefits of a partnership (no double taxation of earnings) and limited liability benefit of corporation (the owner’s liability is limited to what they invest). • S-type corporation provides limited liability while allowing the business owners to be taxed as if they were a partnership – that is, distributions back to the owners are not taxed twice as is the case with dividends in the standard corporate form. Docsity.com Figure 1.2 How the Finance Area Fits into a Corporation A firm’s Vice President of Finance is many times called its Chief Financial Officer, or CFO. This person oversees all the firm's financial activities through the offices of the firm’s Treasurer and Controller. Board of Directors Chief Executive Officer (CEO) ‘Treasurer Duties: Cash management Credit management Capital expenditures Raising capital Financial planning Management of foreign currencies 1 ‘Controller Duties: ‘Taxes Financial statements Cost accounting Data processing Docsity.com