Corporate Finance

• Author: Bert Spector
• Profession: Professor of Strategy at Northeastern University
• Pages: 1-15

Corporate Finance 1

CHAPTER 1

CORPORATE FINANCE

Capital flows into and out of every corporation. Customers buy products

and services, bank s loan money, and investors purchase stocks and bonds.

All that occurs whi le the corporation keeps its daily operations going and

invests in future growth. Mak ing decisions about how to raise that capi-

tal and then spend, record, and report all resulting f inancial transactions

requires experts: fina ncial managers and acc ountants.

At the same time, it is difficult to imag ine any significant interaction

between corporate executives and legal counsel that does not touch upon some

equally signif icant financial tra nsaction. In these transactions, it is vital that

all sides have a clear understanding of one another. Just as attorneys have a

specialized voc abulary, financial ma nagers and accountants often seem to be

speaking their own lan guage. “Weighted average cost of capital,” “net present

value,” “retained earnings,” and “generally accepted accounting practices”

are just some of the many terms you are likely to run ac ross in your day-

to-day dealing s. This chapter provides an overview of the topic of corporate

finance designed to e ase transactions between financial experts and coun sel.

Managing Finances

How to raise capital and then spend it: these are the two matters that most

concern financia l managers. Let’s look at each one in turn.