1.2 What Is Corporate Finance?

Finance is a discipline that studies how individuals，businesses，and governments allocate resources and time in uncertain environments.There are two characteristics that distinguish financial decision-making from other resource allocation decisions：①The costs and benefits of financial decision-making are distributed over time；②neither decision-makers nor anyone else can clearly know the result of decision-making in advance.According to its different research scope，the finance discipline is divided into macro finance and micro finance.Macrofinance is a discipline that studies the allocation of funds within a country or globally，including Macroeconomics，Monetary Banking，and Financial Market.Microfinance is a discipline that studies how individuals and corporates allocate resources and price financial assets，including Investment and Corporate finance.

Corporate Finance addresses the following three questions：

●What long-term investments should the firm choose？

●How should the firm raise funds for the selected investments？

●How should short-term assets be managed and financed？

By answering the three questions，we can also define the main financial decisions of corporate finance，which are Investment Decision（Capital Budgeting Decision），Financing Decision（Capital Structure Decision），and Short-Term Asset Management（Net Working Capital Management Decision）

1.2.1 Investment Decision（投资决策）

From the left side of the balance sheet，the fixed assets of company are generally formed by its investment activities.Managers first seek investment opportunities and then raise funds.The scale and yield of investment opportunities determine the financing strategy.The success of investment is the key to the survival of company.

1.2.2 Financing Decision（融资决策）

From the right side of the balance sheet，the company's short-term liabilities，long-term liabilities and equity form the company's financing activities，that is，the capital structure.The company can obtain funds from different channels，and the financing costs and risks of different channels are also different.When making financing decisions，the company needs to pay attention to the financing costs，the reasonable arrangement of financing structure，and closely cooperate with the actual needs of investment to achieve timely and appropriate funds

1.2.3 Short-Term Asset Management（短期资产管理）

From the top of the left and right sides of the balance sheet，we can make a comparative analysis of current assets and current liabilities，which constitutes the company's short-term asset management problem，that is，the net working capital management decision.For a company，because the value of highly liquid assets such as cash and accounts receivable often change，and accounts payable，taxes payable，and matured debts must be paid on time，the company must pay attention to current assets and current liabilities.Net working capital management needs to reasonably adjust the structure of current assets and current liabilities to improve the turnover efficiency of current assets.