O net fixed assets aka real assets tangible

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o Net fixed assets (aka, real assets) Tangible Intangible 2. Capital structure decisions o Where will we get the long-term financing to pay for the investment? o Long-term debt and equity
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3. Working capital decisions o How will we manage the everyday financial activities of the firm? o Current assets and current liabilities These corporate finance decisions are the ultimate responsibility of the firm’s financial managers. The top financial manager within a firm is usually the Chief Financial Officer (CFO) and the two general areas under the direction of the CFO relate to the treasurer and the controller activities: Treasurer – oversees cash management, credit management, capital expenditures, and financial planning Controller – oversees taxes, cost accounting, financial accounting and data processing It is the treasurer activities that relate to the three primary decisions of corporate finance, while the controller activities deal with the accounting/reporting side. Therefore, the focus of this course is on the treasurer activities under the umbrella of the CFO’s office. Figure 1.2 in the text (RWJJ) provides a general hypothetical chart of the corporate organization. The Corporate Form The three general forms of business organization in the Unites States are: 1. Sole Proprietorship 2. Partnership o General Partnership o Limited Liability Partnership 3. Corporation The sole proprietorship and the partnership are essentially the same and are differentiated only by whether there is one owner or a set of partners.
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The very first issue that any business faces is raising capital funds. This entails answering the important questions of how much we need and where are we going to get it. The corporate form of business provides the answer to the second of these questions when very large amounts of capital are needed. The ability of firms to raise large amounts of capital in the financial market is facilitated through the risk reduction to potential investors through the articles of incorporation and the set of bylaws that are required in order for a firm to take the corporate form. These items define the purpose of the firm, establish the composition of the Board of Directors, and establishes the number of shares authorized to sell to the public and the rights of the firm’s shareholders, among other things. The Importance of Cash Flows Theoretically speaking, the firm’s success is measured by maintaining an average long-term risk-adjusted overall growth rate. I say theoretically because, if the firm grows by r%, then its stock price should also grow by r% and the shareholders’ wealth increases by r%. The recipe for achieving this long-term growth is really quite simple: The firm must generate more cash than it uses. This means that we must invest in assets that generate more cash than they cost. Remember, it is the bondholders and shareholders that provide the capital for the firm’s operations. If our assets generate more cash flows (CFs) than they cost, then the CFs to those investors are greater than the CFs that they invested and they are happy! In addition, other investors will be willing to provide capital and we can continue to achieve that critical overall growth.
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Keep in mind that CFs are not the same thing as accounting income. Under the principle of recognition in
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