# Understanding Financial Management and Securities Markets

## Introduction


### Learning Outcomes

After reading this chapter, you should be able to answer these questions:
1. How do finance and the financial manager affect a firm’s overall strategy?
2. What types of short-term and long-term expenditures does a firm make?
3. What are the main sources and costs of unsecured and secured short-term financing?
4. What are the key differences between debt and equity, and what are the major types and features of long-term debt?
5. When and how do firms issue equity, and what are the costs?
6. How do securities markets help firms raise funding, and what securities trade in the capital markets?
7. Where can investors buy and sell securities, and how are securities markets regulated?
8. What are the current developments in financial management and the securities markets?
In today’s fast-paced global economy, managing a firm’s finances is more complex than ever. For financial managers, a thorough command of traditional finance activities—financial planning, investing money, and raising funds—is only part of the job. Financial managers are more than number crunchers. As part of the top management team, chief financial officers (CFOs) need a broad understanding of their firm’s business and industry, as well as leadership ability and creativity. They must never lose sight of the primary goal of the financial manager: to maximize the value of the firm to its owners.
Financial management—spending and raising a firm’s money—is both a science and an art. The science part is analyzing numbers and flows of cash through the firm. The art is answering questions such as these: Is the firm using its financial resources in the best way? Aside from costs, why choose a particular form of financing? How risky is each option? Another important concern for both business managers and investors is understanding the basics of securities markets and the securities traded on them, which affect both corporate plans and investor pocketbooks. About 52 percent of adult Americans now own stocks, compared to just 25 percent in 1981.
This chapter focuses on the financial management of a firm and the securities markets in which firms raise funds. We’ll start with an overview of the role of finance and of the financial manager in the firm’s overall business strategy. Discussions of short- and long-term uses of funds and investment decisions follow. Next, we’ll examine key sources of short- and long-term financing. Then we’ll review the function, operation, and regulation of securities markets. Finally, we’ll look at key trends affecting financial management and securities markets.