The Role of Financial Management
The Role of Financial Management
The Role of Financial Management
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What is Financial
Management?
Maximization of
Shareholder Wealth!
Modern Corporation
Shareholders Management
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Social Responsibility
Wealth maximization does not
preclude the firm from being socially
responsible.
Assume we view the firm as producing
both private and social goods.
Then shareholder wealth maximization
remains the appropriate goal in
governing the firm.
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Corporate Governance
Corporate governance: represents the
system by which corporations are
managed and controlled.
Includes shareholders, board of
directors, and senior management.
Then shareholder wealth maximization
remains the appropriate goal in
governing the firm.
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Board of Directors
Typical responsibilities:
Set company-wide policy;
Advise the CEO and other senior executives;
Hire, fire, and set the compensation of the CEO;
Review and approve strategy, significant investments, and
acquisitions; and
Oversee operating plans, capital budgets, and financial
reports to common shareholders.
CEO/Chairman roles commonly same person in US,
but separate in Britain (US moving this direction).
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Sarbanes-Oxley Act of 2002
Sarbanes-Oxley Act of 2002 (SOX): addresses
corporate governance, auditing and accounting, executive
compensation, and enhanced and timely disclosure of
corporate information
Imposes new penalties for violations of securities
laws
Established the Public Company Accounting
Oversight Board (PCAOB) to adopt auditing, quality
control, ethics, disclosure standards for public
companies and their auditors, and policing authority
Generally increasing the standards for corporate
governance
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Organization of the Financial
Management Function
Board of Directors
President
(Chief Executive Officer)
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Organization of the Financial
Management Function
VP of Finance
Treasurer Controller
Capital Budgeting Cost Accounting
Cash Management Cost Management
Credit Management Data Processing
Dividend Disbursement General Ledger
Fin Analysis/Planning Government Reporting
Pension Management Internal Control
Insurance/Risk Mngmt Preparing Fin Stmts
Tax Analysis/Planning Preparing Budgets
Preparing Forecasts
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