Finanzas

The goal and function of financial management

The field of finance is closely related to economics and accounting. Economics provides a structure for decision making in such areas as risk analysis, pricing theory through supply and demand relationships, comparative return analysis, and many other important areas. Economics also provides the broad picture of the economic environment in whichcorporations must continually make decisions. Accounting is sometimes said to be the language of finance because it provides financial data through income statements, balance sheets, and the statement of cash flows.

The Impact of the Internet

The Internet craze of the 1990s created what was referred to as the “new economy.”
The Internet has been around for a long time and only in the 1990sdid it start to be
applied to commercial ventures as companies tried to get a return on their previous
technology investments.
The rapid development of computer technology, both software and hardware, continued to turn the Internet into a dynamic force in the economy and has affected the way business is conducted. The rapid expansion of the Internet and its acceptance by the U.S. population hasallowed the creation of many new business models and companies such as Amazon.com , eBay, and Google.

FUNCTIONS OF FINANCIAL MANAGEMENT

It is the responsibility of financial management to allocate funds to current and fixed assets, to obtain the best mix of financing alternatives, and to develop an appropriate dividend policy within the context of the firm’s objectives. These functions areperformed on a day-to-day
basis as well as through infrequent use of the capital markets to acquire new funds. The
daily activities of financial management include credit management, inventory control,
and the receipt and disbursement of funds. Less routine functions encompass the sale of
stocks and bonds and the establishment of capital budgeting and dividend plans.

The appropriaterisk-return trade-off must be determined to maximize the market
value of the firm for its shareholders. The risk-return decision will influence not
only the operational side of the business (capital versus labor or Product A versus
Product B) but also the financing mix (stocks versus bonds versus retained earnings).

Forms of Organization

The finance function may be carried out within a number ofdifferent forms of organizations.
Of primary interest are the sole proprietorship, the partnership, and the corporation.

Sole Proprietorship. The sole proprietorship form of organization represents
single-person ownership and offers the advantages of simplicity of decision making
and low organizational and operating costs. Most small businesses with 1 to 10
employees are soleproprietorships. The major drawback of the sole proprietorship
is that there is unlimited liability to the owner. In settlement of the firm’s debts,
the owner can lose not only the capital that has been invested in the business, but
also personal assets. The profits or losses of a sole proprietorship are taxed as though they belong to the individual owner.

Partnership. The second form of organization isthe partnership, which is similar to a sole proprietorship except there are two or more owners. Multiple ownership makes it possible to raise more capital and to share ownership responsibilities. Most partnerships are formed through an agreement between the participants, known as the articles of partnership, which specifies the ownership interest, the methods for distributing profits, and the meansfor withdrawing from the partnership. Like the sole proprietorship, the partnership arrangement carries unlimited liability for the owners. To circumvent this shared unlimited liability feature, a special form of partnership, called a limited liability partnership, can be utilized. Under this arrangement, one or more partners are designated general partners and have unlimited liability for the...