Corporate finance decisions: an introduction

Based on the assumption that business management is subject to an optimisation process, in which the efficiency of the productive resources used is maximised, it is possible to make a financial representation of the company that supports decision-making. Such a stylised representation centralises in the financial function all interactions within the firm and its relationship with the outside world through markets - e.g. the determination of the cost of production, the value of sales of goods and services, or the payment of labour.
But the financial function is much more than a simple reflection of production operations. A number of other strictly financial variables - i.e. those resulting from the company's relationship with the financial markets - reinforce the importance of this activity. The negotiation and choice of financing sources, or the decision to use risk management instruments are two examples that illustrate the functions in which the financial manager is often involved and, thus, determines business performance.