The actions that stockholders can take to ensure that the management and stockholder’s interests are aligned. Introduction: Stockholders: Stockholders are the owner of the company who invest funds in the business. Stockholders have the voting right and control over the management. The relationship between the stockholder and manager is like the relationship of principal and agent Managers : Managers are the agent of the stockholders who perform for the stockholders. The mangers should not do any such action which is detrimental to the interest of the stockholders. There can be a situation where conflicts may arise between manager’s personal interest and stockholders interest, in such situation the priority should be given to the stockholders interest.

Question

We often hear about the importance of financial statement analysis. Given the various statements prepared and all the information included therein, the question becomes which of the financial statements should get a closer review and why? Explain what the basic financial statements are and what is the purpose of each statement. Within the different statements, in your opinion what is/are the key areas of information to focus on and why? Be specific as to the importance of your selection.

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Chapter 1, Problem 8Q

Summary Introduction

To identify: The actions that stockholders can take to ensure that the management and stockholder’s interests are aligned.

Introduction:

Stockholders: Stockholders are the owner of the company who invest funds in the business. Stockholders have the voting right and control over the management. The relationship between the stockholder and manager is like the relationship of principal and agent

Managers: Managers are the agent of the stockholders who perform for the stockholders. The mangers should not do any such action which is detrimental to the interest of the stockholders. There can be a situation where conflicts may arise between manager’s personal interest and stockholders interest, in such situation the priority should be given to the stockholders interest.

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We often hear about the importance of financial statement analysis. Given the various statements prepared and all the information included therein, the question becomes which of the financial statements should get a closer review and why? Explain what the basic financial statements are and what is the purpose of each statement. Within the different statements, in your opinion what is/are the key areas of information to focus on and why? Be specific as to the importance of your selection.

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Revision Questions for This Week Suppose you see the following regression table: earnings Coef. Std. Err. married 7737.006 265.0139 _cons 9058.677 210.3906 1. What are the 95 confidence intervals for (i) the intercept, (ii). the slope, rounded to the second decimal place? 2. Are any of the coefficients statistically significant at the 5% level of significance? Explain. 3. Return to the t-statistic example from earlier (below). Do either of the 95% confidence intervals contain zero? Should they? log(wage) = .284.092 educ· (.104) (.007)