Finance Overview

• Finance helps express all costs and benefits in standard terms (e.g. in terms of cash today)
• Value destruction entails talented employees leaving the company because of the firm generating low returns.
• Capital structure refers to a company's mix of debt and equity to finance its operations.
• Financial markets promote economic efficiency by allocating resources to those who can put them to use best, keeping transaction costs as low as possible. This is done by providing liquidity, pooling & communicating information, and allowing risk-sharing.
• One benefit of financial institutions is reduced information costs of screening and monitoring borrowers.
• One benefit of financial institutions is the provision of maturity transformation: issuing short-term liabilities to lenders while making long-term loans to borrowers.
• One benefit of financial institutions is providing the benefits of diversification at a lower cost.
• The methodology for pricing financial assets is based on the "Law of One Price" - in the absence of arbitrage, the same goods in different places have the same price.
• What is the methodology that in the absence of arbitrage, the same goods in different places have the same price?

  Law of One Price
• Capital budgeting involves planning and managing the firm's long-term investments, such as shutting down operations, investing in real assets, or receiving cash.
• Working capital management involves managing the firm's short-term assets and liabilities, ensuring that the firm has sufficient resources to continue operating.
• The primary market involves privately selling newly issued securities to venture capital, private equity, institutional investors, or publicly with IPOs.
• Secondary markets are where investors can buy and sell existing securities.
• Financial intermediaries provide access to financial markets for savers and borrowers who purchase and issue financial instruments.
• Depository financial institutions, such as banks, take loans.
• Non-depository financial institutions include insurance companies, mutual funds, hedge funds, private equity or venture capital firms, and pension funds.
• The goal of financial management is to maximise the current value per share of the existing equity.
• The goal of maximising the current value per share is effective due to shareholders being residual owners so it encompasses the interests of everyone else in the company.
• The triple bottom line is the concept that corporate objectives should focus equally on society, the environment, and profit.
• The financial manager should choose the cheapest and least risky funding option. Small firms cannot be listed; therefore, they have access only to private investment. As they grow, stock exchanges become viable funding options, which can also be used.