Principles of Corporate Finance Brealey and Myers Sixth Edition Finance and the Financial Manager Slides by Matthew Will Irwin/McGraw Hill Chapter ©The McGraw-Hill Companies, Inc., 200 1- Topics Covered What Is A Corporation? The Role of The Financial Manager Who Is The Financial Manager? Separation of Ownership and Management Financial Markets Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- Corporate Structure Sole Proprietorships Partnerships Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- Corporate Structure Sole Proprietorships Unlimited Liability Personal tax on profits Partnerships Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- Corporate Structure Sole Proprietorships Unlimited Liability Personal tax on profits Partnerships Corporations Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- Corporate Structure Sole Proprietorships Unlimited Liability Personal tax on profits Partnerships Limited Liability Corporations Corporate tax on profits + Personal tax on dividends Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- Role of The Financial Manager (1) Firm's operations Financial manager Financial markets (1) Cash raised from investors Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- Role of The Financial Manager (2) Firm's operations (1) Financial manager Financial markets (1) Cash raised from investors (2) Cash invested in firm Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 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 Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 10 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 Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 11 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 Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 12 Who is The Financial Manager? Chief ChiefFinancial FinancialOfficer Officer Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 13 Who is The Financial Manager? Chief ChiefFinancial FinancialOfficer Officer Treasurer Irwin/McGraw Hill Comptroller ©The McGraw-Hill Companies, Inc., 200 1- 14 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 Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 15 Financial Markets Money Primary Markets Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 16 Financial Markets Money Primary Markets Secondary Markets Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 17 Financial Markets Money Primary OTC Markets Markets Secondary Markets Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 18 Financial Institutions Company Obligations Funds Intermediaries Banks Insurance Cos Brokerage Firms Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 19 Financial Institutions Intermediaries Obligations Funds Investors Depositors Policyholders Investors Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 ... ChiefFinancial FinancialOfficer Officer Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- 13 Who is The Financial Manager? Chief ChiefFinancial FinancialOfficer Officer Treasurer Irwin/McGraw... Personal tax on profits Partnerships Limited Liability Corporations Corporate tax on profits + Personal tax on dividends Irwin/McGraw Hill ©The McGraw-Hill Companies, Inc., 200 1- Role of The Financial...1- Topics Covered What Is A Corporation? The Role of The Financial Manager Who Is The Financial Manager? Separation of Ownership and Management Financial Markets Irwin/McGraw