Chapter1

PART

Introduction

Valuation Principle Connection. What is corporate finance? No matter

what your role in a corporation, an understanding of why and how financial decisions are made is essential. The focus of this book is how to make optimal corporate financial decisions. In this part of the book, we lay the foundation for our study of corporate finance. In Chapter 1, we begin by introducing the corporation and related business forms. We then examine the role of financial managers and outside investors in decision making for the firm. To make optimal decisions, a decision maker needs information. As a result, in Chapter 2 we review and analyze an important source of information for corporate decision making—the firm’s accounting statements. These chapters will introduce us to the role and objective of the financial manager and some of the information the financial manager uses in applying the Valuation Principle to make optimal decisions. Then, in the next section of the book, we will introduce and begin applying the Valuation Principle.

1

Chapter 1

Corporate Finance and the Financial Manager

Chapter 2

Introduction to Financial Statement Analysis

1

1

Corporate Finance and the Financial Manager

Q Grasp the importance of financial information in both your personal and business lives Q Understand the important features of the four main types of firms and see why the advantages of the corporate form have led it to dominate economic activity Q Explain the goal of the financial manager and the reasoning behind that goal, as well as understand the three main types of decisions a financial manager makes Q Know how a corporation is managed and controlled, the financial manager’s place in it, and some of the ethical issues financial managers face Q Understand the importance of financial markets, such as stock markets, to a corporation and the financial manager’s role as liaison to those markets Q Recognize the role that financial institutions play...