Finance 101: Introduction to Financial Management and Corporate Finance
Goals of Financial Management
Primary goal: wealth maximization
Key activities: daily operations (credit management, inventory management) and long-term risk management
Relationship between Accounting and Finance
Accounting provides data via income statements, balance sheets, and the statement of cash flows
Finance uses these statements to allocate resources for the long-run return
Finance decisions among future investment options; after selection, the accounting function records the results
Investments vs. Corporate Finance
Finance is divided into two subfields: investments and corporate finance
Distinction often by who practices them: individuals (investments) vs corporations (corporate finance)
Real-world context examples reference large firms and how funds are allocated over time
Life Decisions and Financial Literacy
Throughout life, you will face numerous financial decisions
Mentors can help; this text is a starting point for financial literacy
Activities of Financial Management
A corporation is formed through articles of incorporation, which specify the rights and limitations of the entity
Corporate Ownership and Structure
A corporation is owned by shareholders with limited liability; liability exposure generally no greater than the initial investment
A corporation has continual life and is not dependent on any one shareholder for its existence
Easy visibility of ownership by issuing shares of stock
Example: Microsoft with shares outstanding; institutional ownership
Institutional investors include pension funds, mutual funds, banks, insurance companies, and hedge funds
Governance
The shareholders' interests are ultimately managed by the corporation's board of directors