Reference no: EM131386587
Assignment: Describe the goal of financial management.
Essential the goal of financial management is to prosper financially. To earn money and profit. A companies main goal is to make money and stay in business, without financial management, this could be difficult to accomplish. Some financial goals could be to profit, come out on top, beat or exceed the competition, grow, decrease cost and increase earnings, etc. These goals are the basis to the decisions being made in financial management. In the text it talks about maximizing the value of the stock to reach these goals. Its a simple concept that has no time line. Maximize the value of the stock and these goals will be accomplished. Now the task is to develop to criteria to maximize the value of the stock. This would be the financial managers job.
Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2016). Corporate Finance (11th). New York, NY: McGraw-Hill.
Advantages and Disadvantages of Conducting Business as a Corporation
Hello Instructor and Class,
According to Ross, Westerfield, Jaffe, and Jordan (2016), the three major advantages of conducting business as a corporation are limited liability, ease of transfer of ownership, and perpetual succession. Limited liability refers to the maximum financial loss that an owner loses in the event of significant financial obligations, or if the business were to fail. When talking about ease of ownership transfer, it is often associated with the buying and selling of shares. An owner can simply sell his/her stock if he/she wishes to no longer have ownership responsibilities. Perpetual succession means that regardless of life events that may occur, such as the death of an owner, the corporation will continue to exist. The advantages listed can have a significant impact on the inflow of cash for the corporation.
The main disadvantage associated with operating as a corporation is the federal and state taxes imposed on the company. For shareholders, they experience a double tax because personal income from dividends must also be paid.
Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2016). Corporate Finance (11th). New York, NY: McGraw-Hill
Financial Management
Financial management is utilized to ensure that an organization remains healthy, within the marketplace. Through financial management, businesses can determine what financial risks are worth taking, while also gaining a better understanding on what their competitors are doing, that allow them to maintain a certain level of success. In order to meet certain objectives, an organization will utilize financial management within it's top ranks. Upper management can formulate a financial strategy that will ensure that they are able to raise capital, while also creating budgets that allow them to maintain a sense of control. Financial is an essential planning tool, that can make or break your bottom lin
Debt vs. Equity
According to Ross et al. (2016), Liabilities are obligations of the firm that require a payout of cash within a stipulated period. Many liabilities involve contractual obligations to repay a stated amount and interest over a period. This definition is the explanation that I got when I found out that purchasing a home was not considered an investment as I had thought for a long time. Gaining a limited understanding of finance, the way it's undertaken in an actual business environment, allowed me to gain an understanding of what assets and liabilities really are, and how they truly differ from one another. My basic understanding is that assets bring in money and liabilities take money away. That's a basic understanding. Looking forward to understanding this topic a bit more in depth.
Average Vs. Marginal Tax Rates
The average tax rate is the amount of a total income that is subject to being taxed, or the total tax bill compared to earned revenue. The marginal tax rate is the percent of additional taxes owed if income increases. According to Ross, Westerfield, Jaffe, and Jordan (2016), "The reason is that any new cash flows will be taxed at that marginal rate. Because financial decisions usually involve new cash flows or changes in existing ones, this rate will tell us the marginal effect of a decision on our tax bill" (p. 27). Over time, the more an individual or corporation earns in income is increases the percentage of taxable income.
Resource
Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2016). Corporate Finance (11th). New York, NY: McGraw-Hill.