Areas of Finance
1. Financial Management/Corporate Finance
2. Capital Markets
3. Investments
Financial Management/Corporate Finance focuses on
decisions relating to how much and what types of assets
to acquire, how to raise the capital needed to purchase
assets, and how to run the firm so as to maximize its
value.
Capital Markets markets where interest rates, along
with stock and bond prices, are determined. Also,
Financial institutions that supply capital business.
Included are banks, investment banks, stockbrokers,
mutual funds, insurance companies. Even Federal
Reserve system(Banko Sentral ng Pilipinas) and
Securities and Exchange commission.
Investments- decisions about stocks and bonds
A. security analysis finding the proper value of
each individual security
B. Portfolio theory deals with the best way to
structure portfolios of stocks and bonds
C. Market Analysis- issuance of whether stock and
bond markets at any given time are too high, too
low, or about right.
Forms of Business Organization
1. Proprietorship unincorporated business owned by
one individual.
2. Partnership an unincorporated business owned by
two or more persons.
3. Corporation a legal entity created by a state,
separate and distinct from its owners and managers,
having unlimited life, easy transferability of ownership,
and limited liability.
Advantages and Disadvantages
Proprietorship:
Advantages
- Easily and inexpensively formed
- Subject to few government regulations
- Subject to lower income taxes than corporations
Disadvantages
- Unlimited liability of the proprietor
- Limited life of business based on owners life
- No way of getting large sum of capitals
Partnership:
Advantages
- Easily and inexpensively established
- Avoids corporate income tax
- Easier to apply for bank loans
Disadvantages
- Unlimited liability of the partners
- Limited life of business based on partners life
- Lower capital than a corporation
Corporation:
Advantages
- Huge amount of capital
- Limited liability of the shareholders
- Unlimited life
- Easy transfer of shares of stocks
Disadvantages
- High tax rate also double taxation
- Subject to great number of government
regulations
- Complex process in order to form one
C Corporations large corporations which sell their
stock at a public trading market
S Corporations small corporations or certain
qualifications are taxed as if they were a proprietorship
or a partnership.
Limited Liability Company A relatively new type of
organization that is hybrid between a partnership anda
corporation. Taxed as a partnership.
Limited Liability Partnerships used in professional
firms in field of accountancy, law and the likes. Limitied
liability of 1 or more partner but there is a need for 1 or
more general partner. Taxed as a partnership.
Shareholder Wealth Maximization the primary goal
for managers of publicly listed companies implies that
decisions should be made to maximize the long-run
value of the firms common stock. Note that managers
still have to behave ethically and must follow rules and
regulations.
Finance Departments principal task is to evaluate
proposed decisions and judge how they will affect the
stock price and thus shareholder wealth.