corporate finance chapter1Word文件下载.docx
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I.ChapterOutline
1.1TheRoleoftheFinancialManager
A.It’sAllaboutCashFlows
∙Thefinancialmanagerisresponsibleformakingdecisionsthatareinthebestinterestofthefirm’sowners.
∙Afirmgeneratescashflowsbysellingthegoodsandservicesproducedbyitsproductiveassetsandhumancapital.Aftermeetingitsobligations,thefirmcanpaytheremainingcash,calledresidualcashflows,totheownersasacashdividend,oritcankeepthemoneyandreinvestthecashinthebusiness.
∙Afirmisunprofitablewhenitfailstogeneratesufficientcashflowstopayoperatingexpenses,creditors,andtaxes.Firmsthatareunprofitableovertimewillbeforcedintobankruptcybytheircreditors.Inbankruptcy,thecompanywillbereorganized,orthecompany’sassetswillbeliquidated,whicheverismorevaluable.Ifanythingisleftafterallcreditorandtaxclaimshavebeensatisfied,whichusuallydoesnothappen,theremainingcash,orresidual,isdistributedtotheowners.
B.ThreeFundamentalDecisionsinFinancialManagement
∙Thecapitalbudgetingdecision:
Whichproductiveassetsshouldthefirmbuy?
Thisthemostimportantdecisionbecausetheydrivethefirm’ssuccessorfailure.
∙Thefinancingdecision:
Howshouldthefirmfinanceorpayforassets?
∙Workingcapitalmanagementdecisions:
Howshouldday-to-dayfinancialmattersbemanagedsothatthefirmcanpayitsbills,andhowshouldsurpluscashbeinvested?
1.2FormsofBusinessOrganization
A.Asoleproprietorshipisabusinessownedbyoneperson.
∙Thereisalsonolegaldistinctionbetweenpersonalandbusinessincomeforasoleproprietor.
∙Allbusinessincomeistaxedaspersonalincome.
∙Asoleproprietorisresponsibleforpayingallthefirm’sbillsandhasunlimitedliabilityforallbusinessdebtsandotherobligationsofthefirm.
B.Apartnershipconsistsoftwoormoreownersjoinedtogetherlegallytomanageabusiness.
∙Ageneralpartnershiphasthesamebasicadvantagesanddisadvantagesasasoleproprietorship.
∙Whenatransferofownershiptakesplace,suchaswhenapartnerwantstosellout,thepartnershipisterminated,andanewpartnershipisformed.
oTheproblemofunlimitedliabilitycanbeavoidedinalimitedpartnershipwheretheremuststillbeageneralpartnerwithunlimitedliability.
C.Corporationsarelegalentitiesauthorizedunderastatecharter.
∙Inalegalsense,itisa“person”distinctfromitsowners.
∙Theownersofacorporationareitsstockholders,orshareholders.
∙Amajoradvantageofthecorporateformofbusinessisthatstockholdershavelimitedliabilityfordebtsandotherobligationsofthecorporation.
∙Amajordisadvantageofcorporateorganizationistaxes.
oTheownersofcorporationsaresubjecttodoubletaxation—firstatthecorporatelevelandthenatthepersonallevelwhendividendsarepaidtothem.
∙Someoperateasapubliccorporation,whichcanselltheirdebtorequityinthepublicsecuritiesmarkets.
∙Othersoperateasaprivatecorporation,wherethecommonstockisoftenheldbyasmallnumberofinvestors,typicallythemanagementandwealthyprivatebackers.
D.HybridFormsofBusinessOrganization
∙Limitedliabilitypartnerships(LLPs)combinethelimitedliabilityofacorporationwiththetaxadvantageofapartnership—thereisnodoubletaxation.
∙Limitedliabilitycompanies(LLCs)
∙Professionalcorporations(PCs)
1.3ManagingtheFinancialFunction
A.TheChiefExecutiveOfficer
∙Hastheultimatemanagementresponsibilityanddecision-makingpowerinthefirm.
∙Reportsdirectlytotheboardofdirectors,whichisaccountabletothecompany’sowners.
B.TheChiefFinancialOfficer
∙HastheresponsibilityforseeingthatthebestpossiblefinancialanalysisispresentedtotheCEO,alongwithanunbiasedrecommendation.
∙TheCFO’sKeyFinancialReports
oThecontrollertypicallypreparesthefinancialstatements,overseesthefirm’sfinancialandcostaccountingsystems,preparesthetaxes,andworkscloselywiththefirm’sexternalauditors.
oThetreasurerlooksafterthecollectionanddisbursementofcash,investingexcesscashsothatitearnsinterest,raisingnewcapital,handlingforeignexchangetransactions,andoverseeingthefirm’spensionfundmanagers.
oTheinternalauditorisresponsibleforin-depthriskassessmentsandforperformingauditsofareasthathavebeenidentifiedashigh-riskareas,wherethefirmhasthepotentialtoincursubstantiallosses.
C.ExternalAuditors
∙Provideanindependentannualauditofthefirm’sfinancialstatements.
oEnsurethatthefinancialnumbersarereasonablyaccurateandthataccountingprincipleshavebeenconsistentlyappliedyeartoyearandnotinamannerthatsignificantlydistortsthefirm’sperformance.
D.TheAuditCommittee
∙Approvestheexternalauditor’sfeesandengagementletter.Theexternalauditorcannotbefiredorterminatedwithouttheauditcommittee’sapproval.
1.4TheGoaloftheFirm
A.WhatShouldManagementMaximize?
∙Minimizingriskormaximizingprofitswithoutregardtotheotherisnotasuccessfulstrategy.
B.WhyNotMaximizeProfits?
∙Toaskilledaccountant,however,adecisionthatincreasesprofitsunderonesetofaccountingrulescanreduceitunderanother.
∙Accountingprofitsarenotnecessarilythesameascashflows.
∙Theproblemwithprofitmaximizationasagoalisthatitdoesnottelluswhencashflowsaretobereceived.
∙Profitmaximizationignorestheuncertaintyorriskassociatedwithcashflows.
C.MaximizingtheValueoftheFirm’sStockPrice
∙Whenanalystsandinvestorsdeterminethevalueofafirm’sstock,theyconsider:
1.thesizeoftheexpectedcashflows,
2.thetimingofthecashflows,and
3.theriskinessofthecashflows.
∙Thus,themechanismfordeterminingstockpricesovercomesallthecash-flowobjectionsweraisedwithregardtoprofitmaximizationasagoal.
D.CanManagementDecisionsAffectStockPrices?
∙Yes,managementmakesaseriesofdecisionswhenexecutingthefirm’sstrategythataffectthefirm’scashflowsand,hence,thepriceofthefirm’sstock.
1.5AgencyConflicts:
SeparationofOwnershipandControl
A.OwnershipandControl
∙Foralargecorporation,theownershipofthefirmisspreadoverahugenumberofshareholdersandthefirm’sownersmayeffectivelyhavelittlecontrolovermanagementwheremanagementmaymakedecisionsthatbenefittheirself-interestratherthanthoseofthestockholders.
B.AgencyRelationships
∙Anagencyrelationshipariseswheneveroneparty,calledtheprincipal,hiresanotherparty,calledtheagent,toperformsomeserviceorrepresenttheprincipal’sinterest.
C.DoManagersReallyWanttoMaximizeStockPrice?
∙Shareholdersownthecorporation,butmanagerscontrolthemoneyandhavetheopportunitytouseitfortheirownbenefit.
D.AgencyCosts
∙Thecostsoftheconflictofinterestbetweenthefirm’sownersanditsmanagement.
E.AligningtheInterestsofManagementandStockholders
∙ManagementCompensation:
Asignificantportionofmanagementcompensationistiedtotheperformanceofthefirm,usuallytothefirm’sstockprice.
∙ControloftheFirm:
Iftheinterestsofthemanagerandthefirmarenotaligned,theneventuallythefirmwillunderperformrelativetoitstruepotential,andthefirm’sstockpricewillfallbelowitsmaximumpotentialprice.Withitsstockunderpriced,thefirmwillbecomeaprimetargetforatakeoverbyso-calledcorporateraidersorbyothercorporatebuyers.
∙ManagementLaborMarket
oFirmsthathaveahistoryofpoorperformanceorareputationfor“shadyoperations”orunethicalbehaviorhavedifficultyhiringtopmanagerialtalent.
oThepenaltyforextremelypoorperformanceoracriminalconvictionisasignificantreductioninthemanager’slifetimeearningspotential.Managersknowthis,andthefearofsuchconsequenceshelpskeepthemworkinghardandhonestly.
∙AnIndependentBoardofDirectors:
Regulatorsbelieveoneoftheprimaryreasonsformisalignmentbetweenboardmembers’andstockholders’interestsisthelackofboardindependence.
F.Sarbanes-Oxleyandotherregulatoryreformsinclude
∙Greaterboardindependence
∙Internalaccountingcontrols
∙Complianceprograms
∙Ethicsprogram
∙Expansionofauditcommittee’soversightpowers
1.6TheImportanceofEthicsinBusiness
A.Businessethics—asociety’sideasaboutwhatactionsarerightandwrong.
B.AreBusinessEthicsDifferent?
∙Studiessuggestthattraditionsofmoralityareveryrelevanttobusinessandtofinancialmarketsinparticular.
∙Corruptioninbusinesscreatesinefficienciesinaneconomy,inhibitsthegrowthofcapitalmarkets,andslowsacountry’srateofeconomicgrowth.
C.TypesofEthicalConflictsinBusiness
∙ConflictsofInterest—occurwhenaconflictarisesbetweenaperson’spersonalorinstitutionalgainandtheobligationtoservetheinterestofanotherparty.
∙InformationAsymmetry—occurswhenonepartyinabusinesstransactionhasinformationthatisunavailablet
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