FIN 361 - Chapter 1

Sole proprietorship

Business owned by one person

Agency problem

Conflict of interest between the principal and the agent.

What are the two basic classifications under which most potential financial goals fall?

Earning or increasing profits and controlling risk.

The Controller is responsible for which tasks?

Financial accounting, tax reporting, and management information systems.

Corporations in other countries are often called what?

Joint stock companies, public limited companies, or limited liability companies.

Capital budgeting

Process of planning and managing a firm's long-term investments.

Stakeholder

Someone other than a stockholder or creditor, who potentially has a claim on the cash flows of the firm.

Capital structure

Specific mixture of long-term debt and equity the firm uses to finance its operations.

A treasurers responsibilities usually include what?

The handling of cash, making of financial plans, and management of capital expenditures.

In a shareholder-manager relationship, who is the agent?

The manager.

Bylaws

The rules used by a corporation to regulate its existence.

What is the the goal of financial management?

To maximize the current stock value.

Working capital

A firm's short-term assets and short-term liabilities

Partnership

Business with two or more owners

Which companies were involved in corporate scandals that led to Sarbanes-Oxley?

Enron,Worldcom, and Tyco

Agency costs

The costs incurred due to a conflict of interest between stockholders and management.

Corporation

Legal "person", separate and distinct from its owners, with many rights, duties, and privileges of an actual person.

Proxy fight

Mechanism by which unhappy stockholders can act to replace existing management.