Financial Management Essay

1596 WordsApr 30, 20127 Pages
Financial Management: Principles and Applications Chapter 1: The opening chapter has been completely rewritten to begin with an overview of finance, examining what it is and the value students will gain from its study. It then examines different organizational forms and details how finance fits into the firm’s organizational structure. From there, the goal of the firm, the role of ethics and trust in finance, and agency considerations are explored. Finally, the four basic principles of finance— Money Has a Time Value, There Is a Risk-Return Tradeoff, Cash Flows Are the Source of Value, and Markets Reflect Information—are presented. Objective 1. Understand the importance of finance in your personal and professional lives and identify the three primary business decisions that financial managers make. Finance is the study of how people and businesses evaluate investments and raise capital to fund them. 1. What long-term investments should the firm undertake? This area of finance is generally referred to as capital budgeting. 2. How should the firm raise money to fund these investments? The firm’s funding choices are generally referred to as capital structure decisions. 3. How can the firm best manage its cash flows as they arise in its day-to-day operations? This area of finance is generally referred to as working capital management. Production and operations management majors need to understand how best to manage a firm’s production and control its inventory and supply chain. A key component of finance is the management and interpretation of information Others are raising money or borrowing it from the financial markets the legal forms of business organization fall into three categories: the sole proprietorship, the partnership, and the corporation. Sole proprietorship is a business owned by a single individual who is entitled to all the firm’s profits and

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