Corporate Finance Concepts
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What concepts are shown in Corporate Finance?
Which concepts are more prevalent in the business world today?
How are the concepts incorporated in the day to day business?
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Solution Summary
The financial role within a business encompasses many aspects, including the provisioning of cash for operational needs, the ability to evaluate and implement the necessary steps for investing, and the ability to careful analyze and calculate risk in order to manage the firm's assets properly. This discussion attempts to clarify the principles in play for the finance manager in the execution of their positions and in the attempt to manage the finances of the firm.
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By concepts of finance, I will assume that this mirrors the principles of finance. And there are five main principles of finance, and several secondary principles which are noteworthy.
The main principle of finance is maximizing shareholder wealth. Shareholders are the owners of the corporation, and their primary goal is to gain wealth from investing in the firm. This is done by appreciating the price of the stock so that it results in a higher return for the investor - they can gain wealth from the sale of their shares at some future point in time.
The next main principle is the time value of money. Money will reduce in value over time due to external economic factors, such as inflation, changes in interest rates, pricing increases, exchange rate fluctuations, and the like. It is very important for the finance manager to balance this change in monetary value with the expectation of increasing financial return to the firm, and expressing this variation in terms which investors and the financial market place can understand.
The third main principle is risk/reward --- that is, the higher the risk the investor is willing to take, the higher is the reward that they should expect. Now that does not mean they will actually gain the higher reward, but it does mean that the expected return versus the ...
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