Answer: C Shareholders are owners. 3. Limited liability is an important feature of: A) Sole proprietorships B) Partnerships C) Corporations D) All of the above Answer: C 4. A firm's investment decision is also called the: A) Financing decision B) Capital budgeting decision C) Liquidity decision D) None of the above Answer: B 5. The goal of a financial manager is to: A) Maximize sales B) Maximize profits C) Maximize the value of the shareholders D) Maximize the value of the firm with both bond and stock holders Answer: C ( Many of you chose D) This is because shareholders are the owners and managers are hired by them.
Scholars such as Friedman suggest that treating the economic responsibility as the most important responsibility of a business, is called a profit-maximising view, and “the social responsibility of a business is to increase its profits.” This kind of view states that a company should be operated on a profit-orientated basis, with its sole mission being to increase profits. This approach would seem to benefit stockholders, as well as stakeholders, as the stockholder is going to benefit from the profit made by the company and will gain something back from the company, however problems can occur when the businesses and companies do not balance their ethical responsibility, as they can therefore be perceived as greed and unable to balance their corporate social responsibility, and will cause a bad name for a business. So although the stockholder may also be gaining profit by doing this (what the company sees as doing the right thing) is not necessarily the right thing to do in terms of stakeholders. However, Friedman would argue that as long as the business is maximising its profit, that is the main point and so the loss of the stakeholders is less important. This argument can be deemed as weak as Friedman’s approach does not mean that stakeholders can be benefited alongside stockholders, and so disagrees with
Companies are in business to produce a profit for their shareholders. To make a profit one must consider all the stakeholders involved that make a business run. Stakeholders are the owners, employers, employees, investors, customers, suppliers, competitors, communities, media and government agencies. Some may think the only responsibility of business is to compete without fraud or deception and in a legal manner using its assets to increase profit. If you consider all the stakeholders, there is a responsibility to do more than make a profit.
CHAPTER 2 QUIZ 1 | Which of the following best describes a company that follows the inherence theory of social responsibility? | a. | Managers are responsible to shareholders, but serve them best by being responsible to larger society. | | | b. | Managers answer only to shareholders and act only with shareholders interests in mind.
Financial Performance Evaluation Introduction Financial Performance evaluation is a very important analysis used for CFO and business managers to identify which aspect of the company are working effectively and which could be improved. The financial performance evaluation is a process that requires the use of different financial ratios to determine results. The most widely financial ratios used when evaluating corporate performance are profitability, asset utilization, liquidity ratios, and capitalization. Profits ratios are the most important and the one of CFO and business manager pay more attention. Profit ratios are used to determine the overall efficiency of the firm in generating returns for its shareholders.
Lesson 10: Attention Shoppers 1. Discuss whether the structure of the executive compensation program is consistent with the corporate strategy for each company. At a minimum, consider the mix of compensation (i.e. fixed vs. contingent, short term vs. long term, accounting or stock, price-based vs. non-financial based). In your opinion, does the compensation program motivate executives to achieve strategic success?
1. Outright purchase of Smith stock a) Yes, Mr. Jones should purchase the stock of Smith outright, leaving Smithon intact as purchasing the stock of Smith co. is the simple and reasonable transaction where he can also minimize the cost of administrative matters. While issuing debt in his Johnson Services Co. to pay for the Smith Company there can arise debt issue for Johnson co if the cash flow of the company is insufficient in making such purchase to buy Smith co stock. b) Converting C corp to S corp has taxation benefit as C corp faces double taxation. Here, converting Smithon to S corp can give an advantage of having a control of limited or small number of shareholders.
Profits must be legally and accurately accounted for. An advantage of a C-Corporation is owners can set salary levels at whatever they wish instead of paying dividends like ordinary
DQ 1: Should maximizing stock holder wealth always be the top goal of a company? How does this lead to unethical decisions? DQ 2: Explain how ethics affect company goals. Do you think that ethics always guide management’s decisions? Why?
In this scenario the pro’s outweigh the con’s and therefore it would be a great idea to form a corporation. Choosing the proper formation to conduct business is crucial for an organization. Whether one believes that personal liability, limited liability, or double taxation will increase their chances of surviving in the business world each organization has the ability to choose a specific formation. Formations of a business are unique, some benefit some organizations more than others and so forth. However, in most cases if circumstances