Join Jim Stice for an in-depth discussion in this video The danger of free cash flow, part of Running a Profitable Business: Understanding Cash Flow.
- View Offline
- A key issue in corporate governance…is the fact that the owners of the corporation,…the shareholders, do not actually run the corporation.…Instead, the owners hire,…through the elected board of directors,…professional managers to run the corporation.…Problems arise because the economic interests of the owners…and the professional managers are not exactly aligned.…For example, from the standpoint of the shareholders,…there is some economically optimal amount of money…to spend on corporate golf outings…because crucial stakeholder relationships…can sometimes be developed and enhanced on the golf course.…
So the shareholders are happy to pay…for some amount of golfing by the chief executive officer…and the other professional managers.…However, what if the CEO doesn't view these golf outings…as a corporate chore but actually instead…likes golfing at exotic locations?…In this case, the CEO may spend…more corporate resources on golf than is justified…by the resulting economic benefit to the shareholder.…The CEO is said to be consuming management perquisites,…
Want to hear more from Jim and Kay? Learn about all three types of accounting—financial, managerial, and income tax—in their Accounting Fundamentals course.
This course qualifies for 1.75 Category A professional development units (PDUs) through Lynda.com, PMI Registered Education Provider #4101.
The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.
- Differentiating between net income and operating cash flow
- Categorizing cash flow
- Using financial data to deduce cash flow
- Managing operating, investing, and financing cash flows
- Typical cash flow patterns
- Converting net income into operating cash flow
- Improving operating cash flow