Financial Accounting

Every decision made in a business has financial implications, and any decision that involves the use of money is a corporate financial decision. Defined broadly, everything that a business does fits under the rubric of corporate finance. It  is, in fact, unfortunate that we even call the subject corporate finance, because it suggests to  many observers a focus on how large corporations make financial  decisions  and  seems  to  exclude  small and private businesses from its purview.

A more appropriate title for this discipline would be Business Finance, because the basic principles remain the same, whether one looks at large, publicly traded company or small, privately run businesses. All businesses have to invest their resources wisely, find the right kind and mix of financing to fund these investments, and return cash to the owners if there are not enough good investments.

In this introduction, we will lay the foundation for this discussion by listing the three fundamental principles that underlie corporate finance – the investment, financing, and dividend principles – and the objective of company value maximization that is at the heart of corporate financial theory.