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The Company

Companies usually pay interest and principal but sometimes defaults. The Financing Decision of the Corporation. Owners (shareholders). Owners invest in shares expecting a return to compensate for the risk. Company can pay dividends and repurchases shares.

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The Company

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  1. Companies usually pay interest and principal but sometimes defaults The Financing Decision of the Corporation Owners (shareholders) Owners invest in shares expecting a return to compensate for the risk Company can pay dividends and repurchases shares Owners hold diversified portfolios of other investments and expect a return to compensate for the risk Other companies can pay dividends and repurchase shares The Company Financial Markets (stocks, bonds, mutual funds, etc.) Creditors lend money to other companies expecting a return to compensate for the risk Other companies pay interest and return principal but sometimes default Company pays interest and returns principal but sometimes default Creditors (bondholders, banks, other lenders) Creditors lend money expecting a return to compensate for the risk

  2. The Investment Decision of the Corporation Companies invest in long-term assets to provide products and services Long-Term Assets (equipment, real estate) Long-term assets generate cash flows, which can exceed the value of cash invested The Company Short-term assets produce small amounts of cash but it generally does not exceed the value of cash invested Short-Term Assets (cash, receivables, inventory) Companies maintain short-term assets to support the productivity of their long-term assets

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