The Role and Environment
of Managerial Finance
and Financial Planning
Define finance, the major areas of
finance and the opportunities
available in this field, and the legal
forms of business organization.
Describe the managerial finance
function and its relationship to
economics and accounting.
Identify the primary activities of the
financial manager within the firm.
Explain why wealth maximization,
rather than profit maximization, is the
firm’s goal and how the agency issue
is related to it.
Understand the relationship between
financial institutions and markets, and
the role and operations of the money
and capital markets.
Discuss the fundamentals of business
taxation of ordinary income and
Across the Disciplines
Why This Chapter Matters To You
Accounting: You need to understand the
relationships between the firm’s accounting
and finance functions; how the financial statements you prepare will be used for making investment and financing decisions; ethical
behavior by those responsible for a firm’s
funds; what agency costs are and why the firm
must bear them; and how to calculate the tax
effects of proposed transactions.
Information systems: You need to understand the organization of the firm; why finance personnel require both historical
and projected data to support investment
and financing decisions; and what data
are necessary for determining the firm’s
Management: You need to understand
the legal forms of business organization;
the tasks that will be performed by finance
personnel; the goal of the firm; the issue of
management compensation; the role of
ethics in the firm; the agency problem; and
the firm’s relationship to various financial
institutions and markets.
Marketing: You need to understand how
the activities you pursue will be affected
by the finance function, such as the firm’s
cash and credit management policies; the
role of ethics in promoting a sound corporate image; and the role the financial markets play in the firm’s ability to raise capital for new projects. Operations: You need to understand the
organization of the firm and of the finance
function in particular; why maximizing
profit is not the main goal of the firm; the
role of financial institutions and markets in
providing funds for the firm’s production
capacity; and the agency problem and the
role of ethics.
The Role and Environment of Managerial Finance
he field of finance directly affects the lives of every person and every organization. Many areas for study and a large number of career opportunities are available in finance. The purpose of this chapter is to acquaint you with the study of finance, the managerial finance function, and the goal of the firm. The chapter also describes financial institutions and markets, and business taxation. Finance will affect your working life in whatever area of study you choose to concentrate.
Finance and Business
The field of finance is broad and dynamic. It directly affects the lives of every person and every organization. There are many areas and career opportunities in the field of finance. Basic principles of finance, such as those you will learn in this textbook, can be universally applied in business organizations of different types.
What Is Finance?
The art and science of managing
Finance can be defined as the art and science of managing money. Virtually all individuals and organizations earn or raise money and spend or invest money. Finance is concerned with the process, institutions, markets, and instruments involved in the transfer of money among individuals, businesses, and governments....
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