Outcomes:

Assess differences between accounting value or book value, and market value.

Determine a firm's cash flow from its financial statements.

The goal of financial management in a for-profit business is to make decisions that increase the value of the stock or, more generally, increase the market value of the equity (shareholder value). We also learn that book values on an accounting balance sheet can be very different from market values, and that a goal of financial management is to maximize the market value of the firms stock, not its book value, and that corporate finance has three main areas of concern:

QUESTION:

Capital budgeting: What long-term investments should the firm take?

Capital structure: Where will the firm get the long-term financing to pay for its investments? In other words, what mixture of debt and equity should the firm use to fund operations?

Working capital management: How should the firm manage its everyday financial activities?