Summary Business Finance

Finance - science and art of managing money Financial Services - Area of finance concerned with the design and delivery of advice and financial products to individuals, businesses and governments Managerial Finance - Concerns the duties of the financial manager in a business Financial Manager - actively manages the financial affairs of all types of businesses, whether private or public, large or small, profit seeking or not for profit Sole Proprietorship - Strengths: -owner receives all profits (but sustains all losses) -low organizational costs -income included and taxed on proprietor's personal tax return -independence -ease of dissolution Weaknesses: -owner has UNLIMITED LIABILITY in that total wealth can be taken to satisfy debts -limited fund-raising power (can inhibit growth) -proprietor must wear all hats -difficult to give employees long run career opportunities -lacks continuity when proprietor dies Highest # of firms Partnership - Strengths: -can raise more funds than sole proprietorships -borrowing power enhanced by more owners -more available brain power and managerial skills -income included and taxed on partner's personal tax returns Weaknesses: -owners have UNLIMITED LIABILITY and may have to cover debts of other partners -partnership is dissolved when a partner dies -difficult to liquidate or transfer partnership Corporation - Strengths: -owners have LIMITED LIABILITY which guarantees that hey cannot lose more than they invested -can achieve large size via sale of ownership (stock) -ownership (stock) is readily transferable -long life of firm -can hire professional managers -has better access to financing