ftc finance class

CORPORATE FINANCE

The Corporation

FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA 1

CORPORATE FINANCE

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FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA 2

CORPORATE FINANCE

Ice Breaking!FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA 3

CORPORATE FINANCE

Let’s review our course syllabus!

FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA 4

5FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA

THE CORPORATIONWhy study Corporate Finance?

An understanding of why and how financial decisions are made is essential.

The focus on this course is to understand and learn …

how to make optimal corporate financial decisions.

how a corporation is structured and its related business forms.

how is the role of financial managers in making financial decisions for the firm.

how the decision making of financial managers requires information (firm’s fin. statements).

6FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA

THE CORPORATIONSPECIFIC CONTENT OBJECTIVES

UPON COMPLETION OF THIS WORKSHOP, THE STUDENT WILL BE ABLE TO:

1.List and define the four major types of firms in the U.S.; describe major characteristics of each type, including the means for distributing income to owners.

2.Distinguish between limited and unlimited liability, and list firm types that are subject to each type of liability.

7FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA

THE CORPORATIONSPECIFIC CONTENT OBJECTIVES

3. Understand the difference between a Public and a Private Company.4. Understand the difference between a Primary and a Secondary Market.5. Discuss the division of corporate ownership into shares of stock.

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THE CORPORATIONTHE FOUR TYPES OF FIRMS

• Sole Proprietorship

• Partnership

• Limited Liability Company (LLC)

• Corporation (Corp.)

9FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA

THE CORPORATIONTHE FOUR TYPES OF FIRMS

Video: Types of Businesseshttp://www.youtube.com/watch?v=gQkjdbHqGaQ

Activity: Scaffolding activity (groups of 3 students) using a Chart/Matrix diagram to describe the business characteristics, similarities, and differences. You all have 10’; then you will teach each other.

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THE CORPORATIONTHE FOUR TYPES OF FIRMS

AS OF 2013 IN THE U.S.

Source: www.bizstats.com

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THE CORPORATIONTHE FOUR TYPES OF FIRMS (CONT.)

Sole Proprietorship

• Business is owned and run by one person

• Typically has few, if any, employees

• AdvantagesEasy to create

• DisadvantagesUnlimited personal liabilityLimited life

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THE CORPORATIONTHE FOUR TYPES OF FIRMS (CONT.)

Partnership

• Similar to a sole proprietorship, but with more than one owner

• All partners are personally liable for all of the firm’s debts. A lender can require any partner to repay all of the firm’s outstanding debts.

• The partnership ends with the death or withdrawal of any single partner.

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THE CORPORATIONTHE FOUR TYPES OF FIRMS (CONT.)

Limited Liability Company (LLC)

• All owners have limited liability but they

can also run the business.

• Relatively new business form in the U.S.

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THE CORPORATIONTHE FOUR TYPES OF FIRMS (CONT.)

Corporation A legal entity separate from its owners.

• Has many of the legal powers individuals have such as the ability to enter into contracts, own assets, and borrow money.

• The corporation is solely responsible for its own obligations. Its owners are not liable for any obligation the corporation enters into.

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THE CORPORATIONTHE FOUR TYPES OF FIRMS (CONT.)

Corporation Ownership.

• Represented by shares of stock.

• Owner of stock is called: Shareholder; Stockholder; or Equity Holder.

• Sum of all ownership value is called equity.

• Owner is entitled to dividend payments.

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THE CORPORATION

Ownership versus Control of Corporations

Financial Manager

Responsible for:

• Investment Decisions

• Financing Decisions

• Cash Management

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THE CORPORATIONOwnership versus Control of Corporations

Financial Manager

Activity: Scaffolding activity (groups of 3 students) using the 5 W’s diagram.

Article: “Ten tips for leading companies out of crisis,” (Yakola, 2014).http://www.mckinsey.com/insights/corporate_finance/ten_tips_for_leading_companies_out_of_crisis

In groups, analyze the Five W's (Who, When, Where, What, and Why) to evaluate this paper.

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THE CORPORATION

Ownership versus Control of Corporations

Goal of the Firm

Shareholders will agree that they are better off if management makes decisions that maximizes the value of their shares.

FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA

19FTC Pembroke Pines - Corporate Finance - Manuel Christiansen, MBA

THE CORPORATION

The Stock Market

• Public Company

Stock is traded by the public on a stock exchange.

• Private Company

Stock may be traded privately.

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THE CORPORATIONThe Stock Market (cont.)

• Primary Markets

When a corporation itself issues new shares of stock and sells them to investors, they do so on the primary market.

• Secondary Markets

After the initial transaction in the primary market, the shares continue to trade in a secondary market between investors.

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THE CORPORATION

The Stock Market (cont.)

Video: Types of Common Stockhttp://www.youtube.com/watch?v=Hca0PMDv6WA

Activity: use a Y-Chart diagram to analyze

and describe, with respect of

3 variables, a Common Stock.

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THE CORPORATION

The Stock Market (cont.)Largest Stock Markets (Volume of shares

and Value of domestic corporations)

• New York Stock Exchange (NYSE)Market Makers/Specialists

Each stock has only one market maker

• NASDAQDoes not meet in a physical locationMay have many market makers for a single stock

• London Stock Exchange and Tokyo Stock Exchange

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THE CORPORATION

Worldwide Stock Markets Ranked by Two Common Measures as of 2013

Source: www.world-exchanges.org

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THE CORPORATION

Vocabulary

• NASDAQ• NYSE• CEO-Chief Financial Officer• Partnership• Primary Market• Private Companies• Public Companies

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THE CORPORATION

Vocabulary

• “S” corporation• Secondary Market• Shareholder• Sole proprietorship• Stock• Stock Market (or Stock Exchange)• Stockholder

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THE CORPORATION

Q & A

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THE CORPORATIONAssessment - Chapter Quiz

1. What are the four types of firms?2. What type of firm generates most revenue

in the United States?3. What are the advantages and

disadvantages of a Sole Proprietorship?4. What is the number 1 stock market based

on total volume of transactions worldwide?5. What is the number 1 stock market based

on total value of transactions worldwide?6. Multiple choice questions7. T – F questions

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THE CORPORATIONReferences

Berk, J. & DeMarzo, P. (2014). Corporate Finance: The Core. 3rd ed. Boston, MA: Pearson Prentice Hall.ISBN: 978-0-13-299247-3

Enchanted Learning.com. (2003). Graphic Organizers. Retrieved from http://www.enchantedlearning.com/graphicorganizers

The Brandow Company. (2012). The Four Types of Firms. Retrieved from www.bizstats.com

Yakola, D. (2014). Ten tips for leading companies out of crisis. Retrieved from http://www.mckinsey.com/insights/corporate_finance/ten_tips_for_leading_companies_out_of_crisis

World Federation of Exchanges. (2014). Worldwide Stock Markets Ranked by Two Common Measures. Retrieved from www.world-exchanges.org/statistics

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THE CORPORATION

Thank you all and I will see you on our next class!