Philosophy 1200 Lecture Notes - Lecture 6: Cash Flow, Capital Budgeting, Capital Structure

• School: Western University
• Department: Philosophy
• Course: Philosophy 1200
• Professor: Eric Desjardins

Document Summary

Finance- the study or science of the management of funds. The goal of the firm is to create value for the firm"s shareholders. Maximizing the price of the existing common stock. Good financial decisions will help increase stock price and poor financial decisions will lead to a decline in stock price. Management serves as an arbitrator and moderator between conflicting interest groups or stakeholders and objectives. Creditors, managers, employees and customers hold contractual claims against the company. Function of financial manager ( finance function - managing cash flow : raising funds. Investments: cash from operating activities, reinvesting, dividends or interest payments. Accounting profits are not equal to cash flows. It is possible for a firm to generate accounting profits but not have cash or to generate cash flows but not report accounting profits in the books. Cash flow, and not profits, drive the value of a business. We must determine additional cash flows when making financial decisions.