Financial management involves making long-term investment and financing decisions as well as managing day-to-day activities. It is important for two reasons: to maximize profits and shareholder value. However, simple profit maximization is not a good objective for managers because it does not consider risk. Share price maximization also has limitations because it can encourage excessive risk-taking. Agency issues can also arise where manager interests differ from those of shareholders, potentially increasing costs.

1. FINANCE IN AFINANCE IN A
CANADIAN SETTINGCANADIAN SETTING
Dr.Jayashree R. KotnalDr.Jayashree R. Kotnal
Asst. Professor & Head, M.Com ProgrammeAsst. Professor & Head, M.Com Programme
SBS Arts & Commerce College for WomenSBS Arts & Commerce College for Women
Vijayapur.Vijayapur.

2. CHAPTER ONECHAPTER ONE
Financial Management andFinancial Management and
the Financial Objectives ofthe Financial Objectives of
the Firmthe Firm

3. Learning ObjectivesLearning Objectives
1.1. Define financial management, and give twoDefine financial management, and give two
reasons why it is important.reasons why it is important.
2.2. Name three reasons why simple profitName three reasons why simple profit
maximization is not a satisfactory economicmaximization is not a satisfactory economic
objective for financial managers.objective for financial managers.
3.3. Discuss the two main categories of criticismsDiscuss the two main categories of criticisms
of simple share price maximization as aof simple share price maximization as a
corporate objective.corporate objective.

4. Learning ObjectivesLearning Objectives
4.Examine agency relationships, and4.Examine agency relationships, and
outline the potential associated costs.outline the potential associated costs.

5. What is Finance?What is Finance?
FinanceFinance is defined into three broadis defined into three broad
functional categories:functional categories:
1.1. Making long-term investment decisionsMaking long-term investment decisions
2.2. Making long-term financing decisionsMaking long-term financing decisions
3.3. Managing day-to-day activitiesManaging day-to-day activities

6. Forms of BusinessForms of Business
OrganizationsOrganizations
Sole ProprietorshipSole Proprietorship
PartnershipsPartnerships
CorporationsCorporations

7. Sole ProprietorshipSole Proprietorship
Easy to establishEasy to establish
Owned and operated by one individualOwned and operated by one individual
Income generated is taxed at theIncome generated is taxed at the
proprietor’s personal tax rateproprietor’s personal tax rate
Not recognized as a separate legalNot recognized as a separate legal
entityentity
Owner faces unlimited liability withOwner faces unlimited liability with
respect to his/her businessrespect to his/her business

8. PartnershipsPartnerships
Involves two or more ownersInvolves two or more owners
Not recognized as a separateNot recognized as a separate
legal entitylegal entity
Partnership income taxed as personalPartnership income taxed as personal
incomeincome
Details of each partners responsibilitiesDetails of each partners responsibilities
are outlined in a partnership agreementare outlined in a partnership agreement

9. Two Types of PartnershipsTwo Types of Partnerships
GeneralGeneral
PartnershipsPartnerships
- partners face unlimitedpartners face unlimited
liabilityliability
- partners are involved inpartners are involved in
the day-to-daythe day-to-day
operation of theoperation of the
businessbusiness
- partners are jointlypartners are jointly
liable for all theliable for all the
obligations of theobligations of the
partnershippartnership
LimitedLimited
PartnershipsPartnerships
- must have at least onemust have at least one
general partner involvedgeneral partner involved
in businessin business
- limited partners cannotlimited partners cannot
be involved in businessbe involved in business
operationsoperations
- liability is limited to theliability is limited to the
amount invested in theamount invested in the
partnershippartnership

10. CorporationsCorporations
Dominate in terms of assets and salesDominate in terms of assets and sales
Recognized as separate entitiesRecognized as separate entities
Profits are taxed based on corporateProfits are taxed based on corporate
tax ratestax rates
Transfer of ownership is relatively easyTransfer of ownership is relatively easy
Shareholders exert influence over theShareholders exert influence over the
corporation by electing board ofcorporation by electing board of
directorsdirectors