Corporate Finance and the Financial Manager

Financial Manager

The financial manager plays a critical role inside any business enterprise

Potential decisions:

Corporate Tax + Income Tax

Only taxed once

Weigh the costs and benefits of each investment or project
Decide which investments or projects qualify as good uses of the stockholders’ money

Decide whether to raise money from new and existing owners by selling more shares of stock or to borrow the money instead

Ensure that the firm has enough cash on hand to meet its obligations at each point in time

Maximize the wealth of the stockholders

Stockholders of a corporation exercise their control by electing a board of directors
- Make rules on how the corporation should be run, set policy, monitor the performance of the company, and delegates most decisions
The Chief Executive Officer (CEO) is charged with running the corporation by implementing the rules and policies set by the board of directors

When managers put their own self-interests ahead of the interests of those shareholders
- Solution?
- Tie managers compensation to corporation profits

Corporations can be private or public

A private corporation has a limited number of owners and there is no organized market for its shares
A public corporation has many owners and its shares trade on an organized market, called a stock market

Transaction cost investors have to pay in order to trade quickly