Major Financial
Two basic questions to the CFO. First what real assets the company should invest? Second how do you get funding for these investments? The answer to the first question is the decision of investment or capital budget of the company. The answer to the second is the financing decision.
Financial executives ultimately answer to shareholders, who own the company. Shareholders will benefit from any decision to increase the value of its stake in the company. So you could say that a good investment decision which results in the purchase of real assets worth more than it costs, an asset with a net contribution to value.
Funding decisions can not be separated from the financial market. For example, suppose a company chooses to fund a major expansion program with loans. The financial manager must have wondered if the firm value will be increased by issuing more debt or through the issue of new shares. In addition, the financial manager must have considered the interest rate on the loan and have concluded that it was not too high.
The financial manager can not avoid dealing with time and uncertainty. Companies often have the opportunity to invest in assets that can not recover in the short term and which expose the company and shareholders to considerable risk. The investment, if undertaken, there may be financed with debt that could not fully repaid until many years later. The company can not ignore such election, someone has to decide if the opportunity is worth more than its cost and whether it can safely support the additional debt burden.
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