Corporations have 3 important features...
1) They are legally distinct from the owners and pay their own taxes.
2) Corporations provide limited liability (owners are not held responsible for the firm's debt).
3) Owners are not usually the managers.
Financial Managers' role in Corporations...
1) Making Investments or Capital Budgeting decisions (What real assets to buy).
2) Financing Decisions (How to raise the necessary cash).
CFO: Responsible for overall Financial policy and Corporate planning.
Treasurer: Responsible for Cash Management, Raising Capital, Banking Relationships.
Controller: Responsible for Preparation of Financial statements, Accounting, Taxes.
Principal-Agent Problem:
Shareholders (owners) want managers to increase the value of the company's stock. While managers may have different objectives. This is called Principal-Agent problem.
Note: Information taken from "Principles of Corporate Finance" by Brealey, Myers and Allen.
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