CHAPTER 1 The Goals and Functions of Financial Management

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CHAPTER 1 The Goals and Functions of Financial Management

The Role of the Financial Market

Capital Markets: those markets where securities have a life of more than one year.

Money Markets refer to those markets dealing with short term securities that have a life of one year or less.

Exist as a vast global network of individuals and financial institutions that may be lenders, borrowers, or owners of public companies worldwide.

Participants of Financial Market also include

National, State and Local Governments. Primarily borrowers of funds for highways, education, welfare, etc.

The meeting places for people, corporations, and institutions that either need or have money to lend or invest.

Forms of Organization

Corporation: Owned by shareholders with limited liability (their liability exposure is generally no greater that their initial investment) because the corporation reports and pays taxes on ist own income.

Partnership: Second form of organization. Two or more owners.

Sole Proprietorship: Single person ownership.

The Field of Finance

The Financial Manager must know how to interpret these statements in order to generate the best return possible in the long run.

Accounting Provides Financial Data through

Statements or Cash Flows

Balance Sheets

Income Statements