{"id":34,"date":"2023-08-19T00:03:46","date_gmt":"2023-08-19T00:03:46","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/accfinance\/chapter\/ch-1-why-it-matters-principles-of-finance-openstax\/"},"modified":"2023-08-19T00:10:29","modified_gmt":"2023-08-19T00:10:29","slug":"ch-1-why-it-matters-principles-of-finance-openstax","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/accfinance\/chapter\/ch-1-why-it-matters-principles-of-finance-openstax\/","title":{"raw":"Table Of Contents","rendered":"Table Of Contents"},"content":{"raw":"
\r\n
\r\n
\r\n

Introduction to Finance<\/span><\/h1>\r\n
<\/div>\r\n
1. What is Finance<\/div>\r\n<\/div>\r\n
\r\n
\r\n
    \r\n \t
  1. Why It Matters<\/span><\/a><\/li>\r\n \t
  2. 1.1<\/span> What Is Finance?<\/span><\/a><\/li>\r\n \t
  3. 1.2<\/span> The Role of Finance in an Organization<\/span><\/a><\/li>\r\n \t
  4. 1.3<\/span> Importance of Data and Technology<\/span><\/a><\/li>\r\n \t
  5. 1.4<\/span> Careers in Finance<\/span><\/a><\/li>\r\n \t
  6. 1.5<\/span> Markets and Participants<\/span><\/a><\/li>\r\n \t
  7. 1.6<\/span> Microeconomic and Macroeconomic Matters<\/span><\/a><\/li>\r\n \t
  8. 1.7<\/span> Financial Instruments<\/span><\/a><\/li>\r\n \t
  9. 1.8<\/span> Concepts of Time and Value<\/span><\/a><\/li>\r\n \t
  10. Summary<\/span><\/a><\/li>\r\n \t
  11. Key Terms<\/span><\/a><\/li>\r\n \t
  12. Multiple Choice<\/span><\/a><\/li>\r\n \t
  13. Review Questions<\/span><\/a><\/li>\r\n \t
  14. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n
    2 <\/span>Corporate Structure and Governance<\/span><\/span><\/summary><\/details><\/div>\r\n
      \r\n \t
    1. Why It Matters<\/span><\/a><\/li>\r\n \t
    2. 2.1<\/span> Business Structures<\/span><\/a><\/li>\r\n \t
    3. 2.2<\/span> Relationship between Shareholders and Company Management<\/span><\/a><\/li>\r\n \t
    4. 2.3<\/span> Role of the Board of Directors<\/span><\/a><\/li>\r\n \t
    5. 2.4<\/span> Agency Issues: Shareholders and Corporate Boards<\/span><\/a><\/li>\r\n \t
    6. 2.5<\/span> Interacting with Investors, Intermediaries, and Other Market Participants<\/span><\/a><\/li>\r\n \t
    7. 2.6<\/span> Companies in Domestic and Global Markets<\/span><\/a><\/li>\r\n \t
    8. Summary<\/span><\/a><\/li>\r\n \t
    9. Key Terms<\/span><\/a><\/li>\r\n \t
    10. CFA Institute<\/span><\/a><\/li>\r\n \t
    11. Multiple Choice<\/span><\/a><\/li>\r\n \t
    12. Review Questions<\/span><\/a><\/li>\r\n \t
    13. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n
      3 <\/span>Economic Foundations: Money and Rates<\/span><\/span><\/summary><\/details><\/div>\r\n
        \r\n \t
      1. Why It Matters<\/span><\/a><\/li>\r\n \t
      2. 3.1<\/span> Microeconomics<\/span><\/a><\/li>\r\n \t
      3. 3.2<\/span> Macroeconomics<\/span><\/a><\/li>\r\n \t
      4. 3.3<\/span> Business Cycles and Economic Activity<\/span><\/a><\/li>\r\n \t
      5. 3.4<\/span> Interest Rates<\/span><\/a><\/li>\r\n \t
      6. 3.5<\/span> Foreign Exchange Rates<\/span><\/a><\/li>\r\n \t
      7. 3.6<\/span> Sources and Characteristics of Economic Data<\/span><\/a><\/li>\r\n \t
      8. Summary<\/span><\/a><\/li>\r\n \t
      9. Key Terms<\/span><\/a><\/li>\r\n \t
      10. CFA Institute<\/span><\/a><\/li>\r\n \t
      11. Multiple Choice<\/span><\/a><\/li>\r\n \t
      12. Review Questions<\/span><\/a><\/li>\r\n \t
      13. Problems<\/span><\/a><\/li>\r\n \t
      14. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n
        4 <\/span>Accrual Accounting Process<\/span><\/span><\/summary><\/details><\/div>\r\n
          \r\n \t
        1. Why It Matters<\/span><\/a><\/li>\r\n \t
        2. 4.1<\/span> Cash versus Accrual Accounting<\/span><\/a><\/li>\r\n \t
        3. 4.2<\/span> Economic Basis for Accrual Accounting<\/span><\/a><\/li>\r\n \t
        4. 4.3<\/span> How Does a Company Recognize a Sale and an Expense?<\/span><\/a><\/li>\r\n \t
        5. 4.4<\/span> When Should a Company Capitalize or Expense an Item?<\/span><\/a><\/li>\r\n \t
        6. 4.5<\/span> What Is \u201cProfit\u201d versus \u201cLoss\u201d for the Company?<\/span><\/a><\/li>\r\n \t
        7. Summary<\/span><\/a><\/li>\r\n \t
        8. Key Terms<\/span><\/a><\/li>\r\n \t
        9. Multiple Choice<\/span><\/a><\/li>\r\n \t
        10. Review Questions<\/span><\/a><\/li>\r\n \t
        11. Problems<\/span><\/a><\/li>\r\n \t
        12. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n
          5 <\/span>Financial Statements<\/span><\/span><\/summary><\/details><\/div>\r\n
            \r\n \t
          1. Why It Matters<\/span><\/a><\/li>\r\n \t
          2. 5.1<\/span> The Income Statement<\/span><\/a><\/li>\r\n \t
          3. 5.2<\/span> The Balance Sheet<\/span><\/a><\/li>\r\n \t
          4. 5.3<\/span> The Relationship between the Balance Sheet and the Income Statement<\/span><\/a><\/li>\r\n \t
          5. 5.4<\/span> The Statement of Owner\u2019s Equity<\/span><\/a><\/li>\r\n \t
          6. 5.5<\/span> The Statement of Cash Flows<\/span><\/a><\/li>\r\n \t
          7. 5.6<\/span> Operating Cash Flow and Free Cash Flow to the Firm (FCFF)<\/span><\/a><\/li>\r\n \t
          8. 5.7<\/span> Common-Size Statements<\/span><\/a><\/li>\r\n \t
          9. 5.8<\/span> Reporting Financial Activity<\/span><\/a><\/li>\r\n \t
          10. Summary<\/span><\/a><\/li>\r\n \t
          11. Key Terms<\/span><\/a><\/li>\r\n \t
          12. CFA Institute<\/span><\/a><\/li>\r\n \t
          13. Multiple Choice<\/span><\/a><\/li>\r\n \t
          14. Review Questions<\/span><\/a><\/li>\r\n \t
          15. Problems<\/span><\/a><\/li>\r\n \t
          16. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n
            6 <\/span>Measures of Financial Health<\/span><\/span><\/summary>\r\n
              \r\n \t
            1. Why It Matters<\/span><\/a><\/li>\r\n \t
            2. 6.1<\/span> Ratios: Condensing Information into Smaller Pieces<\/span><\/a><\/li>\r\n \t
            3. 6.2<\/span> Operating Efficiency Ratios<\/span><\/a><\/li>\r\n \t
            4. 6.3<\/span> Liquidity Ratios<\/span><\/a><\/li>\r\n \t
            5. 6.4<\/span> Solvency Ratios<\/span><\/a><\/li>\r\n \t
            6. 6.5<\/span> Market Value Ratios<\/span><\/a><\/li>\r\n \t
            7. 6.6<\/span> Profitability Ratios and the DuPont Method<\/span><\/a><\/li>\r\n \t
            8. Summary<\/span><\/a><\/li>\r\n \t
            9. Key Terms<\/span><\/a><\/li>\r\n \t
            10. CFA Institute<\/span><\/a><\/li>\r\n \t
            11. Multiple Choice<\/span><\/a><\/li>\r\n \t
            12. Review Questions<\/span><\/a><\/li>\r\n \t
            13. Problems<\/span><\/a><\/li>\r\n \t
            14. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
              7<\/span>\r\n\r\nTime Value of Money I: Single Payment Value<\/span><\/span><\/summary>\r\n
                \r\n \t
              1. Why It Matters<\/span><\/a><\/li>\r\n \t
              2. 7.1<\/span> Now versus Later Concepts<\/span><\/a><\/li>\r\n \t
              3. 7.2<\/span> Time Value of Money (TVM) Basics<\/span><\/a><\/li>\r\n \t
              4. 7.3<\/span> Methods for Solving Time Value of Money Problems<\/span><\/a><\/li>\r\n \t
              5. 7.4<\/span> Applications of TVM in Finance<\/span><\/a><\/li>\r\n \t
              6. Summary<\/span><\/a><\/li>\r\n \t
              7. Key Terms<\/span><\/a><\/li>\r\n \t
              8. CFA Institute<\/span><\/a><\/li>\r\n \t
              9. Multiple Choice<\/span><\/a><\/li>\r\n \t
              10. Review Questions<\/span><\/a><\/li>\r\n \t
              11. Problems<\/span><\/a><\/li>\r\n \t
              12. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                8 <\/span>Time Value of Money II: Equal Multiple Payments<\/span><\/span><\/summary>\r\n
                  \r\n \t
                1. Why It Matters<\/span><\/a><\/li>\r\n \t
                2. 8.1<\/span> Perpetuities<\/span><\/a><\/li>\r\n \t
                3. 8.2<\/span> Annuities<\/span><\/a><\/li>\r\n \t
                4. 8.3<\/span> Loan Amortization<\/span><\/a><\/li>\r\n \t
                5. 8.4<\/span> Stated versus Effective Rates<\/span><\/a><\/li>\r\n \t
                6. 8.5<\/span> Equal Payments with a Financial Calculator and Excel<\/span><\/a><\/li>\r\n \t
                7. Summary<\/span><\/a><\/li>\r\n \t
                8. Key Terms<\/span><\/a><\/li>\r\n \t
                9. CFA Institute<\/span><\/a><\/li>\r\n \t
                10. Multiple Choice<\/span><\/a><\/li>\r\n \t
                11. Problems<\/span><\/a><\/li>\r\n \t
                12. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                  9 <\/span>Time Value of Money III: Unequal Multiple Payment Values<\/span><\/span><\/summary>\r\n
                    \r\n \t
                  1. Why It Matters<\/span><\/a><\/li>\r\n \t
                  2. 9.1<\/span> Timing of Cash Flows<\/span><\/a><\/li>\r\n \t
                  3. 9.2<\/span> Unequal Payments Using a Financial Calculator or Microsoft Excel<\/span><\/a><\/li>\r\n \t
                  4. Summary<\/span><\/a><\/li>\r\n \t
                  5. Key Terms<\/span><\/a><\/li>\r\n \t
                  6. CFA Institute<\/span><\/a><\/li>\r\n \t
                  7. Multiple Choice<\/span><\/a><\/li>\r\n \t
                  8. Review Questions<\/span><\/a><\/li>\r\n \t
                  9. Problems<\/span><\/a><\/li>\r\n \t
                  10. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                    10 <\/span>Bonds and Bond Valuation<\/span><\/span><\/summary>\r\n
                      \r\n \t
                    1. Why It Matters<\/span><\/a><\/li>\r\n \t
                    2. 10.1<\/span> Characteristics of Bonds<\/span><\/a><\/li>\r\n \t
                    3. 10.2<\/span> Bond Valuation<\/span><\/a><\/li>\r\n \t
                    4. 10.3<\/span> Using the Yield Curve<\/span><\/a><\/li>\r\n \t
                    5. 10.4<\/span> Risks of Interest Rates and Default<\/span><\/a><\/li>\r\n \t
                    6. 10.5<\/span> Using Spreadsheets to Solve Bond Problems<\/span><\/a><\/li>\r\n \t
                    7. Summary<\/span><\/a><\/li>\r\n \t
                    8. Key Terms<\/span><\/a><\/li>\r\n \t
                    9. CFA Institute<\/span><\/a><\/li>\r\n \t
                    10. Multiple Choice<\/span><\/a><\/li>\r\n \t
                    11. Review Questions<\/span><\/a><\/li>\r\n \t
                    12. Problems<\/span><\/a><\/li>\r\n \t
                    13. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                      11 <\/span>Stocks and Stock Valuation<\/span><\/span><\/summary>\r\n
                        \r\n \t
                      1. Why It Matters<\/span><\/a><\/li>\r\n \t
                      2. 11.1<\/span> Multiple Approaches to Stock Valuation<\/span><\/a><\/li>\r\n \t
                      3. 11.2<\/span> Dividend Discount Models (DDMs)<\/span><\/a><\/li>\r\n \t
                      4. 11.3<\/span> Discounted Cash Flow (DCF) Model<\/span><\/a><\/li>\r\n \t
                      5. 11.4<\/span> Preferred Stock<\/span><\/a><\/li>\r\n \t
                      6. 11.5<\/span> Efficient Markets<\/span><\/a><\/li>\r\n \t
                      7. Summary<\/span><\/a><\/li>\r\n \t
                      8. Key Terms<\/span><\/a><\/li>\r\n \t
                      9. CFA Institute<\/span><\/a><\/li>\r\n \t
                      10. Multiple Choice<\/span><\/a><\/li>\r\n \t
                      11. Review Questions<\/span><\/a><\/li>\r\n \t
                      12. Problems<\/span><\/a><\/li>\r\n \t
                      13. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                        12 <\/span>Historical Performance of US Markets<\/span><\/span><\/summary>\r\n
                          \r\n \t
                        1. Why It Matters<\/span><\/a><\/li>\r\n \t
                        2. 12.1<\/span> Overview of US Financial Markets<\/span><\/a><\/li>\r\n \t
                        3. 12.2<\/span> Historical Picture of Inflation<\/span><\/a><\/li>\r\n \t
                        4. 12.3<\/span> Historical Picture of Returns to Bonds<\/span><\/a><\/li>\r\n \t
                        5. 12.4<\/span> Historical Picture of Returns to Stocks<\/span><\/a><\/li>\r\n \t
                        6. Summary<\/span><\/a><\/li>\r\n \t
                        7. Key Terms<\/span><\/a><\/li>\r\n \t
                        8. Multiple Choice<\/span><\/a><\/li>\r\n \t
                        9. Review Questions<\/span><\/a><\/li>\r\n \t
                        10. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                          13 <\/span>Statistical Analysis in Finance<\/span><\/span><\/summary>\r\n
                            \r\n \t
                          1. Why It Matters<\/span><\/a><\/li>\r\n \t
                          2. 13.1<\/span> Measures of Center<\/span><\/a><\/li>\r\n \t
                          3. 13.2<\/span> Measures of Spread<\/span><\/a><\/li>\r\n \t
                          4. 13.3<\/span> Measures of Position<\/span><\/a><\/li>\r\n \t
                          5. 13.4<\/span> Statistical Distributions<\/span><\/a><\/li>\r\n \t
                          6. 13.5<\/span> Probability Distributions<\/span><\/a><\/li>\r\n \t
                          7. 13.6<\/span> Data Visualization and Graphical Displays<\/span><\/a><\/li>\r\n \t
                          8. 13.7<\/span> The R Statistical Analysis Tool<\/span><\/a><\/li>\r\n \t
                          9. Summary<\/span><\/a><\/li>\r\n \t
                          10. Key Terms<\/span><\/a><\/li>\r\n \t
                          11. CFA Institute<\/span><\/a><\/li>\r\n \t
                          12. Multiple Choice<\/span><\/a><\/li>\r\n \t
                          13. Review Questions<\/span><\/a><\/li>\r\n \t
                          14. Problems<\/span><\/a><\/li>\r\n \t
                          15. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                            14 <\/span>Regression Analysis in Finance<\/span><\/span><\/summary>\r\n
                              \r\n \t
                            1. Why It Matters<\/span><\/a><\/li>\r\n \t
                            2. 14.1<\/span> Correlation Analysis<\/span><\/a><\/li>\r\n \t
                            3. 14.2<\/span> Linear Regression Analysis<\/span><\/a><\/li>\r\n \t
                            4. 14.3<\/span> Best-Fit Linear Model<\/span><\/a><\/li>\r\n \t
                            5. 14.4<\/span> Regression Applications in Finance<\/span><\/a><\/li>\r\n \t
                            6. 14.5<\/span> Predictions and Prediction Intervals<\/span><\/a><\/li>\r\n \t
                            7. 14.6<\/span> Use of R Statistical Analysis Tool for Regression Analysis<\/span><\/a><\/li>\r\n \t
                            8. Summary<\/span><\/a><\/li>\r\n \t
                            9. Key Terms<\/span><\/a><\/li>\r\n \t
                            10. Multiple Choice<\/span><\/a><\/li>\r\n \t
                            11. Review Questions<\/span><\/a><\/li>\r\n \t
                            12. Problems<\/span><\/a><\/li>\r\n \t
                            13. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                              15 <\/span>How to Think about Investing<\/span><\/span><\/summary>\r\n
                                \r\n \t
                              1. Why It Matters<\/span><\/a><\/li>\r\n \t
                              2. 15.1<\/span> Risk and Return to an Individual Asset<\/span><\/a><\/li>\r\n \t
                              3. 15.2<\/span> Risk and Return to Multiple Assets<\/span><\/a><\/li>\r\n \t
                              4. 15.3<\/span> The Capital Asset Pricing Model (CAPM)<\/span><\/a><\/li>\r\n \t
                              5. 15.4<\/span> Applications in Performance Measurement<\/span><\/a><\/li>\r\n \t
                              6. 15.5<\/span> Using Excel to Make Investment Decisions<\/span><\/a><\/li>\r\n \t
                              7. Summary<\/span><\/a><\/li>\r\n \t
                              8. Key Terms<\/span><\/a><\/li>\r\n \t
                              9. CFA Institute<\/span><\/a><\/li>\r\n \t
                              10. Multiple Choice<\/span><\/a><\/li>\r\n \t
                              11. Review Questions<\/span><\/a><\/li>\r\n \t
                              12. Problems<\/span><\/a><\/li>\r\n \t
                              13. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                                16 <\/span>How Companies Think about Investing<\/span><\/span><\/summary>\r\n
                                  \r\n \t
                                1. Why It Matters<\/span><\/a><\/li>\r\n \t
                                2. 16.1<\/span> Payback Period Method<\/span><\/a><\/li>\r\n \t
                                3. 16.2<\/span> Net Present Value (NPV) Method<\/span><\/a><\/li>\r\n \t
                                4. 16.3<\/span> Internal Rate of Return (IRR) Method<\/span><\/a><\/li>\r\n \t
                                5. 16.4<\/span> Alternative Methods<\/span><\/a><\/li>\r\n \t
                                6. 16.5<\/span> Choosing between Projects<\/span><\/a><\/li>\r\n \t
                                7. 16.6<\/span> Using Excel to Make Company Investment Decisions<\/span><\/a><\/li>\r\n \t
                                8. Summary<\/span><\/a><\/li>\r\n \t
                                9. Key Terms<\/span><\/a><\/li>\r\n \t
                                10. CFA Institute<\/span><\/a><\/li>\r\n \t
                                11. Multiple Choice<\/span><\/a><\/li>\r\n \t
                                12. Review Questions<\/span><\/a><\/li>\r\n \t
                                13. Problems<\/span><\/a><\/li>\r\n \t
                                14. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                                  17 <\/span>How Firms Raise Capital<\/span><\/span><\/summary>\r\n
                                    \r\n \t
                                  1. Why It Matters<\/span><\/a><\/li>\r\n \t
                                  2. 17.1<\/span> The Concept of Capital Structure<\/span><\/a><\/li>\r\n \t
                                  3. 17.2<\/span> The Costs of Debt and Equity Capital<\/span><\/a><\/li>\r\n \t
                                  4. 17.3<\/span> Calculating the Weighted Average Cost of Capital<\/span><\/a><\/li>\r\n \t
                                  5. 17.4<\/span> Capital Structure Choices<\/span><\/a><\/li>\r\n \t
                                  6. 17.5<\/span> Optimal Capital Structure<\/span><\/a><\/li>\r\n \t
                                  7. 17.6<\/span> Alternative Sources of Funds<\/span><\/a><\/li>\r\n \t
                                  8. Summary<\/span><\/a><\/li>\r\n \t
                                  9. Key Terms<\/span><\/a><\/li>\r\n \t
                                  10. CFA Institute<\/span><\/a><\/li>\r\n \t
                                  11. Multiple Choice<\/span><\/a><\/li>\r\n \t
                                  12. Review Questions<\/span><\/a><\/li>\r\n \t
                                  13. Problems<\/span><\/a><\/li>\r\n \t
                                  14. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                                    18 <\/span>Financial Forecasting<\/span><\/span><\/summary>\r\n
                                      \r\n \t
                                    1. Why It Matters<\/span><\/a><\/li>\r\n \t
                                    2. 18.1<\/span> The Importance of Forecasting<\/span><\/a><\/li>\r\n \t
                                    3. 18.2<\/span> Forecasting Sales<\/span><\/a><\/li>\r\n \t
                                    4. 18.3<\/span> Pro Forma Financials<\/span><\/a><\/li>\r\n \t
                                    5. 18.4<\/span> Generating the Complete Forecast<\/span><\/a><\/li>\r\n \t
                                    6. 18.5<\/span> Forecasting Cash Flow and Assessing the Value of Growth<\/span><\/a><\/li>\r\n \t
                                    7. 18.6<\/span> Using Excel to Create the Long-Term Forecast<\/span><\/a><\/li>\r\n \t
                                    8. Summary<\/span><\/a><\/li>\r\n \t
                                    9. Key Terms<\/span><\/a><\/li>\r\n \t
                                    10. Multiple Choice<\/span><\/a><\/li>\r\n \t
                                    11. Review Questions<\/span><\/a><\/li>\r\n \t
                                    12. Problems<\/span><\/a><\/li>\r\n \t
                                    13. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                                      19 <\/span>The Importance of Trade Credit and Working Capital in Planning<\/span><\/span><\/summary>\r\n
                                        \r\n \t
                                      1. Why It Matters<\/span><\/a><\/li>\r\n \t
                                      2. 19.1<\/span> What Is Working Capital?<\/span><\/a><\/li>\r\n \t
                                      3. 19.2<\/span> What Is Trade Credit?<\/span><\/a><\/li>\r\n \t
                                      4. 19.3<\/span> Cash Management<\/span><\/a><\/li>\r\n \t
                                      5. 19.4<\/span> Receivables Management<\/span><\/a><\/li>\r\n \t
                                      6. 19.5<\/span> Inventory Management<\/span><\/a><\/li>\r\n \t
                                      7. 19.6<\/span> Using Excel to Create the Short-Term Plan<\/span><\/a><\/li>\r\n \t
                                      8. Summary<\/span><\/a><\/li>\r\n \t
                                      9. Key Terms<\/span><\/a><\/li>\r\n \t
                                      10. Multiple Choice<\/span><\/a><\/li>\r\n \t
                                      11. Review Questions<\/span><\/a><\/li>\r\n \t
                                      12. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>
                                        20 <\/span>Risk Management and the Financial Manager<\/span><\/span><\/summary>\r\n
                                          \r\n \t
                                        1. Why It Matters<\/span><\/a><\/li>\r\n \t
                                        2. 20.1<\/span> The Importance of Risk Management<\/span><\/a><\/li>\r\n \t
                                        3. 20.2<\/span> Commodity Price Risk<\/span><\/a><\/li>\r\n \t
                                        4. 20.3<\/span> Exchange Rates and Risk<\/span><\/a><\/li>\r\n \t
                                        5. 20.4<\/span> Interest Rate Risk<\/span><\/a><\/li>\r\n \t
                                        6. Summary<\/span><\/a><\/li>\r\n \t
                                        7. Key Terms<\/span><\/a><\/li>\r\n \t
                                        8. CFA Institute<\/span><\/a><\/li>\r\n \t
                                        9. Multiple Choice<\/span><\/a><\/li>\r\n \t
                                        10. Review Questions<\/span><\/a><\/li>\r\n \t
                                        11. Problems<\/span><\/a><\/li>\r\n \t
                                        12. Video Activity<\/span><\/a><\/li>\r\n<\/ol>\r\n<\/details>\r\n
                                          \r\n
                                          \r\n
                                          \r\n
                                          \r\n
                                          \r\n
                                          \r\n
                                          \r\n
                                          \r\n\r\nFinance is the linchpin that connects and directs many parts of a business or organization. (credit: modification of work \u201cFinance behind the Glass\u201d by Max London\/flickr, CC BY 2.0)<\/span>\r\n\r\n<\/div>\r\n<\/div>\r\n
                                          \r\n
                                          \r\n
                                          <\/div>\r\n
                                          \r\n\r\nConcepts of Time and Value<\/span>\r\n<\/a><\/div>\r\n<\/div>\r\n
                                          \r\n

                                          Finance is essential to the management of a business or organization. Without good financial protocol, safeguards, and tools, running a successful business is more difficult. In 1978, Bacon Signs was a family-owned, regional Midwestern sign company engaged in the manufacture, sale, installation, and maintenance of commercial signage. The company was about to transition from the second to third generation of family ownership. Bacon Signs, established in 1901, had weathered the Great Depression, World War II, the Vietnam War, and the oil embargo and was working its way through historically high rates of inflation and interest rates. The family business had successfully struggled through the ebb and flow of the regional and national economy by providing quality products and service to its regional clients.<\/p>\r\n

                                          In the early 1980s, the company\u2019s fortunes changed permanently for the better. The owner recognized that the custom signs built by his firm were superior in quality to the signs it installed for national franchises. The owner worked with the company\u2019s banker and vice president of finance and operations to develop a production, sales, and financing plan that could be offered to the larger national sign companies. The larger companies agreed to subcontract manufacturing of midsize orders to Bacon Signs. The firm then made a commitment to build and deliver these signs on time and under budget. As Bacon Signs\u2019 reputation for quality grew, so did demand for its products. The original financing plan anticipated this potential growth and was designed to meet anticipated capital requirements so that the firm could expand how and when it needed to.<\/p>\r\n

                                          Bacon Signs\u2019 ability to manufacture and deliver a high-quality product at a good price was the true value of the firm. However, without the planning and ability to raise capital facilitated by the financing plan, the firm would not have been able to act on its strengths at the critical moment. Financing was the key to expansion and financial stability for the firm.1<\/a><\/sup><\/p>\r\n

                                          In this book, we demonstrate that business finance is about developing and understanding the tools that help people make consistently good and repeatable decisions.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n

                                          \r\n

                                          Footnotes<\/h3>\r\n