Corporate Finance

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

Corporate Finance 1

CHAPTER1

CORPORATE FINANCE

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

and services, banks loan money, and investors purchase stocks and bonds.

All that occurs while the corporation keeps its daily operations going and

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

tal and then spend, record, and report all resulting financial transactions

requires experts: financial managers and accountants.

At the same time, it is difficult to imagine 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 vocabulary, 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 across in your day-

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

finance designed to e ase transactions between financial experts and counsel.

Managing Finances

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

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