The Financing Decision of the Corporation

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10 Νοε 2013 (πριν από 3 χρόνια και 5 μήνες)

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The Company


Owners

(shareholders)


Creditors

(bondholders, banks, other
lenders)


Financial Markets

(stocks, bonds, mutual funds, etc.)

The Financing Decision of the Corporation


Companies usually
pay interest and
principal but
sometimes defaults

Company can pay
dividends and repurchases
shares

Owners invest in shares
expecting a return to
compensate for the risk

Creditors lend money
expecting a return to
compensate for the risk

Company pays interest and
returns principal but
sometimes default

Owners hold diversified
portfolios of other
investments and expect a
return to compensate for
the risk

Other companies can pay
dividends and repurchase
shares

Other companies pay interest
and return principal but
sometimes default

Creditors lend money to other
companies expecting a return
to compensate for the risk

The Investment Decision of the Corporation



The Company


Long
-
Term Assets

(equipment, real estate)


Short
-
Term Assets

(cash, receivables, inventory)


Companies invest in long
-
term assets to provide
products and services

Long
-
term assets generate cash
flows, which can exceed the value
of cash invested

Companies maintain
short
-
term assets to
support the productivity of
their long
-
term assets

Short
-
term assets produce small
amounts of cash but it generally
does not exceed the value of cash
invested