Business
Fundamentals of Corporate Finance
"Fundamentals of Corporate Finance" is a foundational text that covers essential concepts in corporate finance, such as financial statements, time value of money, risk and return, and valuation. It provides a comprehensive understanding of how businesses make financial decisions and manage their resources to create value for stakeholders. The book is widely used in academic and professional settings to teach and apply corporate finance principles.
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8 Key excerpts on "Fundamentals of Corporate Finance"
eBook - PDF- Sudanshu Pandeya(Author)
- 2023(Publication Date)
- Society Publishing(Publisher)
The Oxford Dictionary defines the term “finance” as the “administration of money.” Finance is defined as “the Science on research of the handling of finances” by Webster’s Ninth New Collegiate Dictionary, while handling of funds is defined as “the system that encompasses the flow of funds, the issuing of credit, the processing of investments, and the supply of banking services.” Fundamentals of Financial Management 3 Wheeler states, “Business finance is the commercial activity concerned with the creation and utilization of capital money to fulfill the financial demands and general goals of the business.” Business finance can be widely described as the activity related with managing, raising, monitoring, and regulating the funds employed in the business, assert Guthumann and Dougall (Moag et al., 1967). “Business finance deals principally with raising, controlling, and distributing funds by individually run business units functioning in nonfinancial domains of industry,” write Parhter and Wert. Corporate finance is involved with planning, financial prediction, cash management, credit handling, investment examination, and money acquisition for the business, which must use modern technologies and applications appropriate for the global economy (Haigh, 2012). The financial issues that corporate organizations face is dealt with by corporation finance, as per the Encyclopedia of Social Sciences. The financial implications of promoting new businesses and managing them throughout their early stages of advancement, the accounting issues related to the difference among capital and income, the managerial issues brought on by development and expansion, and ultimately the financial modifications necessary for the stabilization or restoration of a company that has run into financial troubles are among these issues (Caldecott, 2020).
eBook - PDF- James A. Brickley, Clifford W. Smith Jr, James A. Brickley, Clifford W. Smith Jr(Authors)
- 2022(Publication Date)
- Edward Elgar Publishing(Publisher)
1 1 The theory of corporate finance: historical overview and basic building blocks 1 1.1 Introduction Corporate finance is broadly concerned with three major decisions: (1) choosing projects in which to invest – capital budgeting, (2) choosing how to finance the firm’s investments and operations – capital structure/ financing policy, and (3) choosing how much and in what form (dividends or share repurchases) to distribute funds to the firm’s shareholders – payout policy. Prior to the middle of the 20th century, finance literature provided little systematic guidance for managers on any of these deci- sions. Rather, this literature consisted of a great deal of institutional detail, plus rules of thumb and ad hoc “theories.” Beginning in the late 1950s and early 1960s, the analytic methods and techniques traditional to economics began to be applied to problems in finance. This evolution was accompanied by a change in focus from normative questions such as What should investment, financing or dividend policies be? to positive theories addressing questions such as What are the effects of alternate investment, financing, or dividend policies on the value of the firm? This shift in emphasis was necessary to provide the scientific basis for the formation and analysis of corporate policy decisions. Financial executives understandably are focused on answering normative questions; providing these answers is at the very heart of their managerial responsibilities. But it is important to recognize that sound positive the- ories provide better answers to these normative questions – they provide decision makers a better understanding of the consequences of their choices. Purposeful decisions simply cannot be made without explicit (or at least implicit) use of positive theories. Managers cannot decide what action to take and expect to meet their objectives without some idea of how alternative actions might affect outcomes – and that is precisely
eBook - PDFEssentials of Logistics and Management
The Global Supply Chain.
- Philippe Wieser(Author)
- 2012(Publication Date)
- EPFL PRESS(Publisher)
19.2 Principles in corporate finance There are three principles that govern corporate finance: • the investment principle; • the financing principle; and • the dividend principle. All three of these represent constraints for companies, but they provide opportunities to identify organizational weaknesses. 506 The Essentials of Logistics and Management 19.2.1 Investment principle Firms should invest in assets only when they are expected to earn a return greater than a minimum acceptable return. This minimum acceptable return is a yardstick, called the hurdle rate. In firms, as for household, resources are scarce, but opportunities are abundant. The decision to invest is made by considering the expected return, and by comparing these to the costs involved in the project. In this Section, we will consider the cost of money as a factor in every project. Common sense tells us that if the expected return of a project is higher than the cost of funding it, then it is feasible; conversely, if the cost is higher than the expected return, it would be preferable to abandon the project. The decision of whether or not to invest should simply be based on the expected return versus the cost of capital. And yet, this rule is not always so easy to follow: • First, we are comparing a known cost with expected return: of course, errors in one of these computations can lead to a bad decision; • Secondly, we need to consider the time period. For longer time periods, the risk of computational error of the expected return is higher; • It can happen that quantitatively, the cost is calculated to be higher than the return, but the firm decides to pursue the project because the potential actions of competi- tors may override a purely mathematical decision: if the firm were to renounce the project, it opens the opportunity for a competitor.
eBook - PDF- Jack Broyles(Author)
- 2003(Publication Date)
- Wiley(Publisher)
Introduction to Financial Management 1 Financial Management and Corporate Governance 3 2 Fundamental Methods of Financial Analysis 17 3 An Introduction to Corporate Debt and Equity 42 4 Shareholder Value in Efficient Markets 61 Financial Management and Corporate Governance 1 This introductory chapter paints a broad-brush picture of what finance is about and how financial management helps to steer the firm toward its financial objectives. First, we consider the financial problems of the small firm and then see how the same problems reappear in large corporations. We also describe the way these problems give rise to the functions performed by the principal financial officers of the firm and show how financial managers assist operating managers to make decisions that are more profitable. Finally, we discuss how the Chief Financial Officer draws upon the information, analysis, and advice of financial managers and staff when advising other members of the company’s board of directors concerning important issues such as shareholder relations, dividend policy, financial planning and policy, and major capital investments. TOPICS The chapter introduces the main concerns of financial management. In particular, we begin by addressing the following topics: the fundamental concerns of financial management; organization of the finance function; the principal financial officers; responsibilities of the principal financial officers; financial objectives; the role of financial management in corporate governance. 1-1 WHAT FINANCIAL MANAGEMENT IS REALLY ABOUT If you were to start a small business of your own tomorrow, you soon would be involved in financial management problems. Having first conceived of a unique product or service, perhaps in a market niche lacking competition, you must then develop a plan. The plan requires answers to some 1 Adapted by permission of J. R. Franks, J. E. Broyles, and W. T. Carleton (1985) Corporate Finance Concepts and Applications (Boston: Kent).
eBook - ePub- Robert Irons(Author)
- 2019(Publication Date)
- Routledge(Publisher)
10 Finance Within the FirmThis chapter is intended as an overview of how finance is used both in the economy and within the corporate structure. We will discuss the role finance plays in different industries as well as within a company. We will review the different forms of organization a business can take, along with the benefits and shortcomings of each form. Finally, we will discuss the goals financial managers should pursue in the decisions they make.The Role of Finance
Within a business, the role of finance is to determine how money is to be raised, spent and invested. Funds raised from different sources have different costs and different associated risks. The chief financial officer decides whether to issue new bonds, for what maturity and paying what interest rate, or to issue equity, preferred or common, and what dividend to pay the shareholders. The ability to raise money quickly and at a reasonable cost directly impacts other decisions the firm will make, from what markets to enter to how many people to hire. The CFO will help to decide what products to make and how to make them, based on the costs associated with the production processes and the cash flows realized from the products. The CFO determines how much cash to make available for operations and where to invest any leftover cash. Credit policy, inventory valuation and dividend policy all fall under the responsibility of the head of the finance department.Within a corporation, money is followed carefully through the system, and it is managed both for the short term and the long term. In the short term, the firm must decide how much cash to keep on hand, how much inventory to keep on the shelves, how much credit to extend and to whom and whether to pay the bills quickly to get a discount or pay them later at full price. In the long term, decisions include which production assets to purchase, whether to use manual or automated processes, whether to build a production facility or rent one, whether to pay a trucking company to ship their goods or to purchase their own fleet of trucks, or any number of other decisions that will determine the nature of the firm’s cash flows for years to come.
eBook - ePubBusiness for Communicators
The Essential Guide to Success in Corporate and Public Affairs
- Sandra Duhé(Author)
- 2021(Publication Date)
- Routledge(Publisher)
Chapter 5How and Why Finance Rules the Business World
DOI: 10.4324/9781003000600-6While I was an undergraduate in business school, and even later when I was in industry and then an MBA student, I noticed something different about people in finance. Whether they were students, professors, or executives, the successful ones carried a certain mystique. They lived for numbers and analysis. They spoke a language few people understood. They were Excel wizards. They had nice clothes, nice cars, and impressive job titles. The one thing I found they frequently wrestled with, however, was making something complex understandable for a non-financial audience. I never doubted their competence. I just marveled at how many struggled to explain concepts they clearly understood but just couldn’t effectively convey.If you’ve ever taken a college-level finance, accounting, computer science, or statistics class, it’s likely you’ve experienced having a brilliant expert struggle to explain something they obviously and deeply comprehend. There are exceptions, naturally, but in our line of work as communicators, it is imperative for us to effectively convey the complex to stakeholders who make decisions based on the information we provide. When you’re the face and voice for an organization, you must be comfortably conversant on all of its moving parts, and, as we discussed in Chapter 1 , building your internal network of expert sources is key to this learning.Why is corporate finance so important? Because it’s responsible for the company’s capital structure, that is, how the firm finances its activities, chooses its investments, returns capital to investors, and balances risk and profitability (“What is Corporate Finance,” 2020 ). Corporate finance is a commanding force, led by the Chief Financial Officer
- Hans Landström(Author)
- 2017(Publication Date)
- Edward Elgar Publishing(Publisher)
In accordance with such a process approach, I will adopt a fairly simple definition in the book: ‘Entrepreneurship is the process of changing ideas into commercial opportunities through the creation of new and growing ventures’. Corporate finance is a fairly mature scientific field within economics and management. Although the definition of corporate finance differs, in general we can say that it focuses on financial decisions related to running a corporation, usually including issues such as: (1) the acquisi- tion of capital and the capital structure of corporations; (2) the use of financial capital for different purposes, for example, in the form of investments or as working capital; and finally (3) decisions regarding the size of the capital in a corporation. The primary goal of corpo- rate finance is to maximize or increase shareholder value. In line with such a definition, corporate finance usually includes a large number of issues related to the corporation’s capital structure, that is, the divide between debt and equity capital, investment and project valuation, div- idend policy, working capital management, but also different kinds of financial risk management issues in a corporation, that is, the process of assessing risk and developing strategies to manage financial risk in the corporation (see Brealey et al., 2013). Following the definitions of entrepreneurship and corporate finance, I regard entrepreneurial finance as the application and adaption of financial tools and techniques to manage entrepreneurial ventures (Leach and Melicher, 2009), and in this respect, entrepreneurial ven- tures are new and growing ventures. More formally, I define entrepre- neurial finance as the acquisition and the use of capital, as well as the decision regarding the size of capital in new and growing ventures, and particularly paying attention to the characteristics and particularities of the development phase of the venture (see also definition by Mitter and Kraus, 2011).
eBook - PDF- Chan S. Park, Gunter P. Sharp(Authors)
- 2021(Publication Date)
- Wiley(Publisher)
Whatever methodol- ogy is used, certain basic principles remain unchanged. For example, these principles should be applicable whether the investment is for a new firm, the expansion of an existing facility, 3 4 CHAPTER 1 Accounting Income and Cash Flow or the formation of a new corporate entity. Our goal is to identify such principles, formu- late a logical decision framework for economic evaluation, and examine a general analytical methodology for assessing the worth of any proposed capital project. 1.2 THE CORPORATE INVESTMENT FRAMEWORK The general principles we present should be equally applicable to personal investments and corporate investments, but we will place our emphasis on real investments by a typical firm. For that reason, we first need to define the basic objective of the firm and review some of its functions. 1.2.1 THE OBJECTIVE OF THE FIRM We will assume that the objective of any firm is to maximize its value to its stockholders. The market price of a firm’s stock represents the value of that particular firm. The value is governed by present and prospective earnings per share; the timing, duration, and risk of these earnings; and other factors that affect the market price of the stock. Thus, the market value is an index of a company’s progress and reflects the market’s assessment of how well the firm is managed for the benefit of its stockholders. Therefore, we can view maximizing the stockholders’ wealth as equivalent to maximizing the market value of a share of stock. It is certainly possible to have objectives other than maximization of the stockholders’ wealth. Frequently, maximizing profits is regarded as the proper objective of the firm, but this objective is not as inclusive as that of maximizing stockholders’ wealth. For example, a firm could always raise total profits by issuing stock and using the proceeds to invest in U.S.
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