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Finance Goals

In: Business and Management

Submitted By Bajben
Words 1207
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The Goal of Finance: Relative Valuation
Finance is such an important part of modern life that almost everyone can benefit from under-standing it better. What you may find surprising is that the financial problems facingPepsiCoorMicrosoft are not really different from those facing an average investor, small businessowner, entrepreneur, or family. On the most basic level, these problems are about how to allo-cate money. The choices are many: money can be borrowed or saved; money can be investedinto projects, undertaken with partners or with the aid of a lender; projects can be avoidedaltogether if they do not appear valuable enough. Finance is about how best to decide amongthese alternatives—and this textbook will explain how.
There is one principal theme that carries through all of finance. It isvalue. It is the question
Theme Number One:
Value! Make Decisions
Based on Value.“What is a project, a stock, or a house worth?” To make smart decisions, you must be able to assess value—and the better you can assess value, the smarter your decisions will be.
The goal of a good corporate manager should be to take all projects that add value, and avoid
Corporate managers needto know howto value—and so do you.those that would subtract value. Sounds easy? If it only were so. Valuation is often very difficult. It is not the formulas that are difficult—even the most complex formulas in this book con-
The math is not hard. tain just a few symbols, and the overwhelming majority of finance formulas only use the fourmajor operations (addition, subtraction, multiplication, and division). Admittedly, even if theformulas are not sophisticated, there are a lot of them, and they have an intuitive economicmeaning that requires experience to grasp—which is not a trivial task. But if you managed topass high-school algebra, if you are motivated, and if you keep an open mind, you

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