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chapter1 - Chapter 1 Introduction to Financial Management...

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Chapter 1 Introduction to Financial Management Issues: What is financial management? What is the goal of financial management? 1
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Basic Areas of Finance Corporate finance Investments: value of financial assets, risk versus return, and asset allocation Financial institutions: companies that specialize in financial matters such as banks and insurance companies 2
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Basic Questions 1. What should a firm invest in? (capital budgeting) 1. How should a firm finance its investments? (capital structure) 1. How will we manage the everyday financial activities of the firm? (working capital management) 3
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The Balance-Sheet Model of the Firm Current Assets Fixed Assets 1 Tangible 2 Intangible Total Value of Assets: Shareholders’ Equity Current Liabilities Long-Term Debt Total Firm Value to Investors: 4
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The Assets of a Firm Fixed Assets -Tangible (examples: factories, equipment) -Intangible (examples: patents, technological advantages, talented employees) Current Assets -Inventory -Accounts receivable -Cash -Financial assets 5
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