Fiance

1

Finance and the Financial Manager

INTRODUCTION

This chapter, like the customary introductory chapter in most textbooks, gives a brief introduction to the topics covered by the book and provides an overview of the book. The chapter is organized in six sections and covers the following topics succinctly.

      - Organizational forms for business and the advantages and disadvantages of the corporate form
      - The role and the organizational position of the financial manager
      - Separation of ownership and management
      - Financial markets and financial institutions
      - Overview of the book

KEY CONCEPTS IN THE CHAPTER

Corporate and Other Forms of Business Organization: Common organizational forms for businesses include the sole proprietorship – the typical form for a small business owned and managed by a single individual; the partnerships, and corporations. As the business grows and becomes larger, they tend to be organized as corporations with a large number of stockholders.   Most businesses evolve from smaller privately held corporations to large public corporations.   The corporate form enjoys the advantages of limited liability for the owners (stockholders) and the ability to attract large amounts of capital. Professional managers are hired to manage today’s typical corporations.   This separation of ownership and management gives the firm permanence. Corporations have distinct legal identity and are governed by the articles of incorporation.   Corporations enjoy considerable flexibility of operation.

The disadvantages of the corporate form include costly legal and accounting set-up and double taxation of earnings.

Financial Manager’s Role: Corporations use different real assets to run their business and finance the acquisition of these assets partly by raising finances through issue of financial securities, which are in the financial markets (figure 1.1).   The financial manager’s primary role is deciding which assets to...