Intro to Finance and Corporate Structure
FNCE 604 Week 1 Professor Michael Kinnen

Introductions
Name Background Expectations for this course Post-degree goals

2

Who are you and where are you going?

Goals for this class
To give you the capacity to understand the theory and apply, in real world situations, the techniques that have been developed in corporate finance.
Motto for class: If it cannot be applied, who cares?

3

To give you the big picture of corporate finance so that you can understand how things fit together.
Motto for class: You can forget the details, but don’t miss the storyline.

To show you that corporate finance is a blast!
Motto for class: Are we having fun yet?

The Balance Sheet Model of the firm
Managerial finance focuses on three decisions:
In what long-term assets should the firm invest?
This question concerns the lefthand side of the BS

4

How can the firm raise cash for its required expenditures?
This question concerns the righthand side of the BS

How should shortterm operating cash flows be managed?
This question concerns the upper portion of the BS

The capital budgeting decision

The capital structure decision

Net working capital decisions

Cash flows are king!
The most important job of a financial manager is to:
Create value from capital budgeting, financing, and net working capital activities.

5

How do managers do this?
Buy assets that generate more cash than they cost Sell bonds, stocks, and other financial instruments that raise more cash than they cost.
Thus, the firm must create more cash than it uses - the cash flows paid to bondholders and stockholders should be greater than the cash flows they put into the firm.

Finance is about one thing:
And that one thing is valuation:
How much should you pay for the asset (what is that stock, bond, or business really worth? ) How should you