This chapter has introduced you to some of the basic ideas in business finance. In it, we
saw that:
- Business finance has three main areas of concern:
- Capital budgeting. What long-term investments should the firm take?
- Capital structure. Where will the firm get the long-term financing to pay for its
investments? In other words, what mixture of debt and equity should we use to
fund our operations?
- Working capital management. How should the firm manage its everyday
financial activities?
- The goal of financial management in a for-profit business is to make decisions that
increase the value of the stock, or, more generally, increase the market value of the
equity.
- The corporate form of organization is superior to other forms when it comes
to raising money and transferring ownership interests, but it has the significant
disadvantage of double taxation.
- There is the possibility of conflicts between stockholders and management in a large
corporation. We called these conflicts agency problems and discussed how they
might be controlled and reduced.
Of the topics we've discussed thus far, the most important is the goal of financial management.
Throughout the text, we will be analyzing many different financial decisions, but we
always ask the same question: How does the decision under consideration affect the value
of the equity in the firm? |
