Fundamentals of corporate finance
Fundamentals of corporate finance (European edition) by David Hillier Quartile 4 IBA
Chapter 1 - 14
Chapter 1 Introduction to corporate finance
1.1 Corporate finance and the financial manager
Corporate finance must be considered with three basic types of question:
1. What long-term investments to make
2. Where will we get the money for those investments from
3. How will we manage everyday financial activities
1. What long-term investment to make:
To process of planning and managing long-term investments is called capital budgeting
Capital budgeting = the process of planning and managing a firm’s long-term investments.
Managers try to indentify investment opportunities that are worth more than they cost to acquire.
Capital budgeting involves evaluating the size, timing and risk of future cash flows.
2. Where will we get the money for those investments from?
Capital structure = the mixture of long-term debt and equity maintained by a firm
Long-term debt = borrowing by the firm (> 1 year) to finance its long-term investments
Equity= the amount of money raised by the firm that comes from the owners investment
A manager has two concerns in this area:
1. What mixture of debt and equity is the best
2. What are the least expensive sources of funds for the firm?
3. How will we manage everyday financial activities?
Working capital = a firm’s short-term assets and liabilities
Managing the firm’s working capital is a day-to-day activity which ensures that the firm has sufficient resources to continue its operations and avoid costly interruptions.
1.2 The goal of financial management
Possible goals for for-profit organisations:
Survive
Avoid financial stress or bankruptcy
Beat the competition
Maximize sales or market share
Minimize costs
Maximize profits
Maintain steady earnings growth
Goals are or related to profitability or related to controlling risk.
The goal of financial management is to maximize the current
Chapter 1 - 14
Chapter 1 Introduction to corporate finance
1.1 Corporate finance and the financial manager
Corporate finance must be considered with three basic types of question:
1. What long-term investments to make
2. Where will we get the money for those investments from
3. How will we manage everyday financial activities
1. What long-term investment to make:
To process of planning and managing long-term investments is called capital budgeting
Capital budgeting = the process of planning and managing a firm’s long-term investments.
Managers try to indentify investment opportunities that are worth more than they cost to acquire.
Capital budgeting involves evaluating the size, timing and risk of future cash flows.
2. Where will we get the money for those investments from?
Capital structure = the mixture of long-term debt and equity maintained by a firm
Long-term debt = borrowing by the firm (> 1 year) to finance its long-term investments
Equity= the amount of money raised by the firm that comes from the owners investment
A manager has two concerns in this area:
1. What mixture of debt and equity is the best
2. What are the least expensive sources of funds for the firm?
3. How will we manage everyday financial activities?
Working capital = a firm’s short-term assets and liabilities
Managing the firm’s working capital is a day-to-day activity which ensures that the firm has sufficient resources to continue its operations and avoid costly interruptions.
1.2 The goal of financial management
Possible goals for for-profit organisations:
Survive
Avoid financial stress or bankruptcy
Beat the competition
Maximize sales or market share
Minimize costs
Maximize profits
Maintain steady earnings growth
Goals are or related to profitability or related to controlling risk.
The goal of financial management is to maximize the current