Welcome to Principles of Finance! We hope you find the study of finance to be enjoyable (or, at least tolerable). The author team has worked hard to create a readable, concise text to help you master the fundamentals and principles of financial analysis.
Finance is pervasive in the modern world. In fact, it is so pervasive it is hard to explain exactly what ‘financial analysis’ means. For example, does it deal with money? Cash flow? Investments? Stocks? Bonds? Economic activity? Personnel? Outsourcing? Conveyor belts? Business funding? Company valuation? The answer to these many questions is Yes--finance deals with all these issues and many more. In the end, finance is a general term for economic problem solving in a business or organizational environment.
The tools and techniques introduced in this course provide a basic framework for you to evaluate problems and potential solutions. The end goal of the analysis is usually guided by the idea of value creation. Should we build the new plant in Des Moines or in Indonesia? Should we finance the project with borrowed funds or raise new equity capital from investors? Will the $3 million spent on the new conveyor system benefit the firm? How much risk should I take with my retirement savings? Most choices faced in the business world involve financial analysis as part of the decision-making process. To say the least, understanding the language and techniques of finance will be a very useful tool in your career.
One word of caution is appropriate as you begin your study. New finance students frequently focus so hard on the tools and techniques of finance that they forget to consider the bigger picture. Certainly, you can’t make good decisions without the number-crunching involved in financial analysis; but, good decisions require a broad understanding of the environment in which decisions are made. Finance is an input in the decision process. By themselves, finance tools/metrics don’t make decisions. Rather, the output of financial analysis informs decisions.
Whatever your career goals, the finance acumen you develop in this course will be a vital part of your skill set. As you devote time to this material, you are making an investment in yourself that will pay big dividends in the years to come. Good Luck!