Shareholders react to poor investment decisions by causing the value of the stock to fall. Shareholders react to good decisions by pushing up the stock’s price. There’s a direct benefit to shareholders if the objectives are wealth maximization. Society benefits as businesses compete to create wealth – resources are allocated to their most productive use.
Most important form of business. Shareholders have the ultimate power Shareholder’s maximum loss = what he paid for the stock Corporate fraud issues – most involved directors not doing their jobs. Many acted like wall flowers rather than as man-eating plants.
It’s not my intent to make you “taxis” as I used to call the Ford tax lawyers.
Unlike depreciation must use same method for inventories for taxes and book Text mentions carrybacks and carryforwards. Allows firms with losses in one year to offset income in other years. Text is out of date. Now can apply losses against income eared only in last three years and get a refund. Carryforward now up to 15 years.
This will complicate things when we get to the dividend chapter.
Risk exists because of uncertainty. The R/R concept is easy but projecting the risk and return is more difficult because it lacks certainty. You won’t make risky investments unless you are adequately compensated. Your expected return is high enough to get you to take on the risk. Follow with Fig 1.1
The point is that TVM techniques permit you to compare cash flows received in different periods on a logical basis.
This summer I did lots of reading. I was amazed how often the phrase “Cash is King” came up Problem is that our accrual accounting system measures when profits are earned, not when they are collected. CF is important because only cash can be invested to earn a return.
Followed by Fig 1.2 overhead Diversification accomplished by buying a variety of securities. Analogy: The best way to prevent the eggs in your basket from getting scrambled is to spread them about. Be like the Easter Bunny – he doesn’t put them all in one place.
Notre Dame Athletic Director Coulter – this stuff is real! BofA Chair, now Citibank’s Vice Chairman? Follow with Ali.
FCPA. Same? Or go/flow standards? Ali-general-WSJ-$1 mil-Lockheed fined $25. Other cos
Chapter 1 Introduction to Financial Management
What is financial management?
Legal forms of business
Principles of taxation
Shareholder wealth, not profit, maximization is goal