e-Learning Session

The Field of Finance

The field of finance is related to economics. Economics helps define and explain finance on a microeconomic level. Three microeconomic variables that relate to the study of finance are ____,____and____(Critical Concept). Macroeconomic variables also help us in our study of finance. The primary macroeconomic factor affecting us is the advent of technology and the ____________(Critical Concept). See Slide Finance is a Combination of Accounting and Economics (66.0K) .
Accounting is said to be the language of finance. This is because it provides the financial analyst with financial statement with which to analyze the firm. The primary financial statements are ____,____and____(Critical Concept)
Careers in finance are plentiful and lucrative for the properly trained student . Students can have a wide range of careers from corporate financial analysts, banking executives, securities analysts, investment bankers, financial consultant, corporate finance officer and stockbroker to name only a few.

How Did The Field of Finance Evolve?

Early in the 20^th century, finance separated from economics. Important functions then were preservation of capital, bankruptcy, and maintenance of liquidity to name a few.
In the 20^th century, finance became more analytical. The discipline then studied allocating financial capital for purchasing plant and equipment.
The focus in the discipline shifted to ____(Critical Concept).
In modern times, new issues have surfaced in finance: ____,____ and ____(Critical Concept) to name a few.
The New Economy impacts finance because it affects the pattern and sped with which cash flows through the firm.
Some important issues in modern finance are short-term versus long-term financing, Slide Short Term vs Long Term Financing (65.0K) the risk-return tradeoff, Slide The Risk Return Tradeoff (57.0K) . financial capital versus real capital, Slide Financial Capital vs Real Capital (42.0K) and stocks versus bonds, Slide Stocks vs Bonds (40.0K)

Forms of Business Organization

The sole proprietorship is the most common business organization in the U.S. though it does not have the highest sales. One person owns all the assets and is responsible for all the debts. The two primary advantages of this form of organization are: ____ and ____(Critical Concept). However, a major disadvantage is ____(Critical Concept).
The partnership has many of the same characteristics as the sole proprietorship except it has two or more owners. A partnership where one or more partners are designated to bear the responsibility for the debts of the firm is called a ____(Critical Concept). In this case, general partners bear the burden of the debts and limited partners can only participate on a restricted level in the operations of the firm.
The corporation, in terms of sales and profits, is the most prevalent type of business organization in the U.S. Corporations are legal entities unto themselves with the power to sue and be sued, enter into legal contracts, buy real estate and many other functions of an individual. The major advantage of the corporate form of business organization is____(Critical Concept). In other words, individuals can only lose the amount of their original investment in the corporation. Take a look at Slide Forms of Organization (56.0K) for a summary.
Corporations report and pay taxes on their own income. If that income is passed on to stockholders in the form of dividends, the stockholders pay taxes on it once again. This disadvantage of the corporate form of business organization is called __________ and can be avoided by organizing a corporation as a Subchapter S Corporation(Critical Concept) .

Goals of Financial Management

First and foremost, the appropriate goal for a firm in a capitalist society is __________________ (Critical Concept). This is probably one of the most important concepts you'll learn in finance! The firm management is charged with taking actions consistent with the wishes of shareholders that will increase their stock price. Stockholder wealth maximization takes into account both timing of returns and risk.
An agency problem may exist if managers do not keep the wishes of the stockholders in mind. This simply means that managers act to maximize other factors besides shareholder wealth such as profit, managerial salaries or other factors. Such actions may lead to takeovers.
Social responsibility, another desirable firm goal, is not inconsistent with maximization of shareholder wealth. Corporations who are good citizens will maximize shareholder wealth in the long run, although in the short-run, they may suffer increased expenses. Examples are the Joe Camel/Phillip Morris campaign, which has long ago been stopped by Phillip Morris in an effort to curb teen smoking even though pulling the campaign undoubtedly hurt Phillip Morris in the short run. In the long run, this fostered good will.
McDonalds, Inc. also tries to foster goodwill in the community through their Ronald McDonald House Charities (RMHC) and other associate programs .

Structure and Function of the Financial Markets

Critical Concept .
With regard to internationalization, many major corporations have international presence such as Coca-Cola and Sony .
Technology has had a huge impact on firms since the 1990's. Discount online brokers that offer services to clients have sprung up all over the Internet. An online broker you might take a look at is Patagon.com Securities .

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