Intro to Corporate Finance Chap. 1

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•Chapter 1

INTRODUCTION TO CORPORATE FINANCE

GOAL

Today, corporate finance managers must make decision in a much more coordinated manner and generally has direct responsibilities for a control process. Because there are financial implications in virtually all segments of business, she/he must have sufficient knowledge of finance to work these implications into the area.

At the end of this chapter, you should be able to:

• Undenstand the nature of corporate finance .

• Understand financial management framework.

• Identify the basic corporate finance goals.

• objectives and functions of corporate finance.

Finance is the science of management of money and other assets. Therefore, if you think that finance is about money and how to make profit especially when you running your own business. Then, you are partly right as finance is much more than that. The understanding of financial theories and practices are the essential elements in developing an effective and efficient decision to meet the organizational goals and objectives. Even if you are not managing any formal organization, the knowledge of finance are applicable in most of our day-to-day decision making because modern economy cannot strive without the element of money.

THE SCOPE AND NATURE OF CORPORATE FINANCE

Corporate finance involves in the management of the firm's resources to its full potential to provide maximum benefits to the owners or the stockholders. It deals with:

“An attempt to obtain and allocate financial resources effectively and efficiently to achieve the firm's objective; that is to maximize the shareholders' wealth by maximizing share price.”

Thus, it r...

... middle of paper ...

...ctors such as the needs of the stockholders, funds requirements, growth rate of the company and liquidity of the firm that need to be considered explicitly.

SUMMARY

. Role of the financial manager has gone through dramatic changes over the years.

. Financial managers must make decisions concerning the investment, financing and management of the company’s assets.

. The objective of financial decision making is the maximization of the wealth of the owners.

. Dividend policy determines the ultimate distribution of a company’s earnings between retention and cash dividend payments to its shareholders.

STUDY QUESTIONS

1. Discuss the decisions that the financial manager needs to make.

2. Compare and contrast the goals of profit maximization and maximization of shareholders wealth.

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