【正文】 rate over 100 actual pany examples throughout the text, so you’re not apt to miss them. Considering both the examples throughout the text and the research questions and problems, you are exposed to hundreds of actual panies. Extensive coverage of financial statement analysis. While most textbooks provide some coverage of financial statement analysis, we have provided you with much more detail in Part Six of the textbook. Chapter 6 and the three chapters in Part Six allow an instructor to focus on financial statement analysis. Extensive coverage of alternative debt instruments. Because of the innovations in the debt market, alternative forms debt instruments can be issued by a corporation. In Chapter 15, you are introduced to these instruments. We then devote one chapter to the most popular alternative to corporate bond issuance, the creation and issuance of assetbacked securities. Coverage of leasing and project financing. We provide indepth coverage of leasing in Chapter 27, demystifying the claims about the advantages and disadvantages of leasing you too often read about in some textbooks and professional articles. Project financing has grown in importance for not only corporations but for countries seeking to develop infrastructure facilities. Chapter 28 provides the basic principles for understanding project financing. Early introduction to derivative instruments. Derivative instruments (futures, swaps, and options) play an important role in finance. You are introduced to these instruments in Chapter 4. While derivative instruments are viewed as plex instruments, you are provided with an introduction that makes clear their basic investment characteristics. By the early introduction of derivative instruments, you will be able to appreciate the difficulties of evaluating securities that have embedded options (Chapter 9), how there are real options embedded in capital budgeting decisions (Chapter14), and how derivative instruments can be used to reduce or to hedge the cost of borrowing (Chapter 15). Standalone nature of the chapters. Each chapter is written so that chapters may easily be rearranged to fit different course structures. Concepts, terminology, and notation are presented in each chapter so that no chapter is dependent upon another. This means that instructors can tailor the use of this book to fit their particular time frame for the course and their students’preparation (for example, if students enter the course with sufficient background in accounting and taxation, Chapters 5 and 6 can be skipped). We believe that our approach to the subject matter of financial management and analysis will help you understand the key issues and provide the foundation for developing a skill set necessary to deal with real world financial problems. 1 Introduction to Financial Management and Analysis Finance is the application of economic principles and concepts to business decisionmaking and problem solving. The field of finance can be considered to prise three broad categories: financial management,investments, and financial institutions: ■ Financial management. Sometimes called corporate finance or business finance, this area of finance is concerned primarily with financial decisionmaking within a business entity. Financial management decisions include maintaining cash balances, extending credit, acquiring other firms, borrowing from banks, and issuing stocks and bonds. ■ Investments. This area of finance focuses on the behavior of financial markets and the pricing of securities. An investment manager’s tasks, for example, may include valuing mon stocks, selecting securities for a pension fund, or measuring a portfolio’s performance. ■ Financial institutions. This area of finance deals with banks and other firms that specialize in bringing the suppliers of funds together with the users of funds. For example, a manager of a bank may make decisions regarding granting loans, managing cash balances, setting interest rates on loans, and dealing with government regulations. No matter the particular category of finance, business situations that call for the application of the theories and tools of finance generally involve either investing (using funds) or financing (raising funds). Managers who work in any of these three areas rely on the same basic knowledge of finance. In this book, we introduce you to this mon body of knowledge and show how it is used in financial decision making. Though the emphasis of this book is financial management, the basic principles and tools also apply to the areas of investments and financial institutions. In this introductory chapter, we’ll consider the types of decisions financial managers make, the role of financial analysis, the forms of business ownership, and the objective of managers’ decisions. Finally, we will describe the relationship between owners and managers. FINANCIAL MANAGEMENT Financial management enpasses many different types of decisions. We can classify these decisions into three groups: investment decisions, financing decisions, and decisions that involve both investing and financing. Investment decisions are concerned with the use of funds— the buying, holding, or selling of all types of assets: Should we buy a new die stamping machine? Should we introduce a new product line? Sell the old production facility? Buy an existing pany? Build a warehouse? Keep our cash in the bank? Financing decisions are concerned with the acquisition of funds to be used for investing and financing daytoday operations. Should managers use the money raised through the firms’ revenues? Should they seek money from outside of the business? A pany’s operations and investment can be financed from outside the business by incurring debts, such as though bank loans and the sale of bonds, or by selling ownership interests. Be