Corporate Finance For Dummies
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Determining how financially successful a corporation is actually provides a lot more information about the corporation than simply how well it manages money. Financial performance analyses are the way we pick apart, quantify, and measure every aspect of the success of the corporation.

Because the ultimate goal of a corporation is to generate value for its shareholders (in other words, to make money), every aspect of the corporation’s activities is assessed in financial terms.

The nature of money combined with the legal obligation of corporations to maximize shareholder value make finance the ideal medium to assess how successful the corporation is, what activities are contributing to or detracting from that success, and how the corporation compares to others in the market as well as how it compares to itself over time.

A significant number of people are actually paid based on the financial performance of whatever they’re responsible for managing. Corporate executives, for example, are often paid based on the financial performance of the company (which isn’t necessarily a good thing when you consider that financial metrics can be manipulated in the short run to generate high bonuses but at the cost of the long-run health of the company).

Hedge fund managers are quite typically paid based on how the portfolio they’re managing compares to the market, and many external firms, such as investment bankers, account managers, and mergers and acquisitions (M&A) consultants, are paid based on the success of the transactions made or sales closed.

Everyone else relies on corporations to be financially successful because when they’re not, companies go out of business forcing many people to lose their jobs, suppliers to lose a customer, and the world as a whole to lose a value-generating entity.

Of course, if that entity isn’t operating efficiently, then it’s wasting resources that could be better allocated to a more competitive corporation. Analyzing the financial performance of the corporation is how you determine whether a corporation is competitive or will be lost to the natural selection of the market.

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Kenneth W. Boyd has 30 years of experience in accounting and financial services. He is a four-time Dummies book author, a blogger, and a video host on accounting and finance topics.

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