Financial Management Decisions PDF

# Financial Management Decisions - The financial manager must be concerned with three basic types of questions: 1. **Capital budgeting** is the process of planning and managing a firm's long-term investments. - Evaluating the size, timing, and risk of future cash flows is the essence of...

# Financial Management Decisions - The financial manager must be concerned with three basic types of questions: 1. **Capital budgeting** is the process of planning and managing a firm's long-term investments. - Evaluating the size, timing, and risk of future cash flows is the essence of capital budgeting. 2. **Capital structure** is the mixture of debt and equity maintained by a firm. - How much should the firm borrow (i.e., what mixture of debt and equity is best)? - What are the least expensive sources of funds for the firm? 3. **Working capital management** refers to a firm’s short-term assets and liabilities. # The Financial Manager - Owners (i.e. stockholders) of large corporations are usually not directly involved in making business decisions, especially on a day-to-day basis. - Corporations employ managers to represent the owners' interests and make decisions on their behalf. - Financial management function is usually associated with a top officer of the firm, such as a vice president of finance of the chief financial officer (CFO). - Vice president of finance coordinates activities of the treasurer and the controller. - Controller’s office handles cost and financial accounting, tax payments, and management information systems. - Treasurer’s office is responsible for managing the firm's cash and credit, financial planning, and capital expenditures. # Corporate Finance and the Financial Manager - What is corporate finance? - Corporate finance, broadly speaking, is the study of ways to answer these three questions: 1. What long-term investments should you take on (i.e., what lines of business will you be in and what sorts of buildings, machinery, and equipment will you need?) 2. Where will you get the long-term financing to pay for your investment? Will you bring in other owners or will you borrow the money? 3. How will you manage your everyday financial activities, such as collecting from customers and paying suppliers? # Finance: A Quick Look - Financial topics are usually grouped into five main areas: - **Corporate finance** is the focus of this textbook. - **Investments** deals with financial assets (e.g., stocks and bonds). - Career paths in this field include becoming a financial advisor, portfolio manager, or security analyst. - **Financial institutions** are businesses that deal primarily in financial matters (e.g., banks and insurance companies). - **International finance** careers generally involve international aspects of either corporate finance, investments, or financial institutions. - **Fintech** is the combination of technology and finance. # Chapter Outline - Finance: A Quick Look - Corporate Finance and the Financial Manager - Forms of Business Organization - The Goal of Financial Management - The Agency Problem and Control of the Corporation - Financial Markets and the Corporation