Finance Case Study Analysis: Core Concepts of the U.S. Financial System

 Corporate Finance

Corporate finance is important to all managers because it enables them to predict the funds a company will need for upcoming projects and strategize on utilizing them. Corporate finance skills help managers identify and select the right projects by applying financial techniques to evaluate their estimated costs and profits. They also use this knowledge to communicate with stakeholders, building trust and attracting investment.

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Forms of a Company

The three main forms of a company are sole proprietorship, partnerships, and corporations. A sole proprietorship is owned and operated by an individual. Its advantages include easy and inexpensive setup, and the owner takes all profits. The downside is that the owner takes all losses and company liability. A partnership is where two or more people own a business. It is easy to start and operate, and partners bring complementary skills and expertise. However, partners’ personal assets are vulnerable if the company has a legal dispute. A corporation is a legal entity owned by shareholders and managed through a board of directors. The advantage is that there is limited liability for shareholders. The disadvantage is shareholders have limited control over the business, and it is more complex to operate.

Company Growth

A company goes public through an initial public offering (IPO), selling privately held stock to the public. This helps the company raise funds channeled to expansion, providing liquidity, and repaying debt.

Agency problems arise when there is a conflict of interest between the principal (company stockholders) and the agent (company management).

Corporate governance is the system, structure, rules, processes, and procedures used to direct and manage a firm.

Primary Objective for Managers

Managers’ primary objective should be maximizing shareholder value by making decisions that raise the value of company stock.

Do firms have any responsibilities to society at large?

Yes. Firms should fulfill their corporate social responsibility by observing ethical, legal, and stakeholder considerations.

Is stock price maximization good or bad for society?

Yes. Stock price maximization leads to company growth, revenue, job creation, and innovation.

Should firms behave ethically?

Yes. Firms must consider employees, society, environment, and law