Financial Management Overview
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1) What are the primary responsibilities of a corporate financial staff?
2) Is stock price maximization good or bad for society?
3) Is maximizing stock price the same thing as maximizing profit?
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Solution Summary
The primary responsibilities of a corporate financial staff are described. Stock price maximization is explained. Difference between maximizing stock price and maximizing profit is explored.
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1) What are the primary responsibilities of a corporate financial staff?
- The primary responsibilities (goals) of a corporate financial staff are to enhance corporate value, without taking excessive financial risks.
The corporate financial staff makes long-term and short-term decisions to achieve the goals. Capital investment decisions comprise the long-term choices about:
- Which projects receive investment,
- Whether to finance that investment with equity or debt, and
- When or whether to pay dividends to shareholders.
Short-term corporate finance decisions are called working capital management and deal with the balance of current assets and current liabilities; the focus here is on:
- Managing cash,
- Inventories, and
- Short-term borrowing and lending (e.g., the credit terms extended to customers).
2) Is stock price maximization good or bad for society?
In general, it is ...
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