Read the summary and the most important questions on Foundations of Finance - the logic and practice of financial management | 9780273789956 | Keown, Martin & Petty

• 1 Financial Management and the Firm

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• What is the goal of a firm?

  "maximization of the shareholders wealth"
  
  create value for the company's owners (shareholders)

• How to apply a firms goal?

  Think about what effect a decision should have on the stockprices (company's value)

• What is incremental cash flow?

  the difference between the cash flow before and after a change in management and Production (like investing in a new machine)

• What is an efficient market?

  one where the prices of the assets traded in that market fully reflect all available information at any instant in time

• What happens when you forget the first principle of Finance?

  Cash Flow is what matters -> Focussing on earnings instead of cash flow, resulting in wrong interpertations of the companies health

• What happens when you forget the second principle of Finance?

  Money has a time value -> Focusing on the short run, resulting in shortening of companies life

• What happens when you forget the third principle of Finance?

  Risk requires a reward -> underestimating risks, resulting in negative returns of investments

• What happens when you forget the fourth principle of Finance?

  Market prices are generally right -> ignoring the market efficiency, resulting in a bad streak of decisions

• What happens when you forget the fifth principle of Finance?

  Conflict of interest cause agency problems -> executive compensation is out of control, resulting into excesive personal preferenced decicion making

• How do investors decide where to invest their money?

  The expected return should reflect the calculated risk plus the delay in consumption