THIS BOOK IS about financial decisions made by corporations. We should start by saying what these
decisions are and why they are important.
Corporations face two broad financial questions: What investments should the firm make? and
How should it pay for those investments? The first question involves spending money; the second involves
raising it.
The secret of success in financial management is to increase value. That is a simple statement, but
not very helpful. It is like advising an investor in the stock market to “Buy low, sell high.” The problem
is how to do it.
There may be a few activities in which one can read a textbook and then do it, but financial management
is not one of them. That is why finance is worth studying. Who wants to work in a field where
there is no room for judgment, experience, creativity, and a pinch of luck? Although this book cannot
supply any of these items, it does present the concepts and information on which good financial
decisions are based, and it shows you how to use the tools of the trade of finance.
We start in this chapter by explaining what a corporation is and introducing you to the responsibilities
of its financial managers. We will distinguish real assets from financial assets and capital investment
decisions from financing decisions. We stress the importance of financial markets, both national
and international, to the financial manager.
Finance is about money and markets, but it is also about people. The success of a corporation
depends on how well it harnesses everyone to work to a common end. The financial manager must
appreciate the conflicting objectives often encountered in financial management. Resolving conflicts
is particularly difficult when people have different information. This is an important theme
which runs through to the last chapter of this book. In this chapter we will start with some definitions
and examples.