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UNIVERSIDADE DOS AÇORESDEPARTAMENTO DE ECONOMIA E GESTÃOFINAÇAS EMPRESARIAS I
PROFESSOR, STUDENTPEDRO PIMENTEL LOGHIN MIHAI-LIVIU
 
First assignment
2009
Chapter 1 Finance and Financial Manager
The first chapter of the book is talking about the corporations. First of all we can saythat not all businesses are corporations. We can identify three types of businesses: sole proprietorships, partnership and corporate finance.Almost all the large businesses are organized in corporations. The corporation sharesare held by a group of investors who own the corporation but they don’t manage it.First time when a firm is established in corporation are only a small group of investors,some managers of the company and a few backers. At this stage the company doesn’t haveshares open for public trade and we can say that the firm is
closely held
. After some time whenthe corporate will grow its shares will be trade on the public market and this corporations areknown as
public companies.
 Shareholders elect a
board of directors
, which can be drawn from top of managementfor the positions of directors and others can be for the positions of non-directors, representingthem and act in best interest of them.This separation of ownership and management gives the corporation permanence because for example, if a shareholder sells his share to a new investors the activity of thecorporation will not disrupt and the other side if a manager is dismissed or quit, he will bereplaced and the activity will be continuous.Corporations have limited liability, which means that stockholders will not be able to be responsible for the firm debts unlike partnerships or sole proprietorships which they can.The corporation is based on articles of incorporation that set out the purpose of the business, how many shares can be issued, numbers of directors and so on. We can say that acorporation is a legal “person” that will be able to burrow or lend money, can sue or be sued, pays taxes but cannot vote.This type of organization have advantages and disadvantages. For example oneadvantage is that it can raise money by selling new shares to investors and it can buy thoseshares back. A disadvantage is that a corporation’s legal machinery and communicating with ashareholders can be time-consuming and costly.A corporation needs a large variety of tangible goods like machinery, factories, officesand intangible goods such as technical expertise, trademarks, patents, etc which are called real2 |Page
 
First assignment
2009
assets. To buy this assets the corporation sells pieces of paper called financial assets or securities.Between firm operations and the financial markets stands the financial manager. Hisrole is to trace the flow of cash from investors to the firm and back to investors again. Themanagers from large corporations must decide which assets should invest and also where thoseassets should be located.The big corporations are scattered around the globe. Shares are trade in financialcenter such as New York, London, Tokyo. Bond and loans are easily trade in all of the worldmoving across national borders. For this kind corporations, day-to-day cash management becomes a complex task.Financial manager is a term who refer to anyone responsible for a significantinvestment of financing decision. In the smallest corporations is only one person but in most of the cases responsibility is dispersed.In small companies there is often only one financial executive which is called treasurer.But the larger company have also a controller, who prepares the financial statements, managesthe firm’s interval accounting and looks after its tax obligations. The difference between atreasurer and controller is: the treasurer’s main responsibility is to obtain and manage thefirm’s capital, while the controller ensures that the money is used efficiently. The larger firmusually appoint a chief financial officer (CFO) which oversee both the treasurer’s and thecontroller’s work. The controller of CFO is responsible for organizing and supervising thecapital budgeting process. Sometimes the ultimate decisions for important issues are taken bythe board of directors.The large corporation the ownership and management are separated because isabsolutely necessary, because this kind of corporation can have hundreds of thousands of shareholders and is no way them to involve in management of the corporation.This separation has advantages for example the ownership can hire a professionalmanager to accomplish his objectives. But this separation brings and problems when theirsobjectives are different and this is not the only one problem for example the shareholders haveto think how to work with managers so they will accomplish their interests. Another problem isfor example, the interests of shareholders and bondholders that can be different so the companycan have big issue because of this.We can think at the company’s overall value like a pie divided among a number of claimants. All this claimants are included in a complex web of contracts and understandings.3 |Page
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