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Ten Axioms of Financial Management

Discuss Ten Axioms of Financial Management within the Financial Management ( FM ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; Ten Axioms of Financial Management 1. The risk-return trade-off: We won’t take on additional risk unless we expect to be ...

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Ten Axioms of Financial Management
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Sunanda K. Chavan
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Ten Axioms of Financial Management - September 13th, 2010

Ten Axioms of Financial Management

1. The risk-return trade-off: We won’t take on additional risk unless we expect to be compensated with additional return. The greater the risk, the greater the expected return.

2. The time value of money: A dollar received today is worth more than a dollar received in the future. A dollar received today is worth more than a dollar received tomorrow because a dollar received today can earn a day’s interest by tomorrow.

3. Cash- not profits- is king. Accounting profit or loss frequently does not coincide with the actual transfer of money. The first rule of running any business: Do not run out of cash.

4. Incremental cash flows: It’s only what changes that counts. Think incrementally. How will a decision change the cash flow of the company?

5. The curse of competitive markets: Why it’s hard to find exceptionally profitable projects. Success attracts competition. Competition lowers profits.

6. Efficient capital markets: The markets are quick and the prices are right. Security prices adjust very quickly and appropriately to new information.

7. The agency problem: Managers won’t work for owners
unless it’s in their best interest. Most people will work harder for themselves than they will for someone else.

8. Taxes bias business decisions. Decisions using cash flows must always use after-tax cash flows.

9. All risk is not equal. Some risk can be diversified away
and some cannot. Total risk is a combination of firm-specific risk, which can be diversified away, and market risk, which cannot be diversified away. (But see the futures markets.)

10. Ethical behavior is doing the right thing, and ethical dilemmas are everywhere in finance. Businesses that are not trusted by other businesses or by customers will not maximize the wealth of stockholders. Perhaps the primary goal of firms should address stakeholders and not just stockholders.
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Re: Ten Axioms of Financial Management - August 19th, 2014

its very informative material i have ever found on this topic "Ten Axioms of Financial Management"
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Business Education
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Re: Ten Axioms of Financial Management - May 28th, 2015

One of the best notes I have ever found. Nice '
'
Most important point in these answer is an ethical behavior. When your business do no have the trust factor in it. its growth won't take place. Even if your ideas are big but if people don't trust then its a waste. Nice one....!!!!!!!
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Anjali Khurana
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Post Re: Ten Axioms of Financial Management - October 20th, 2015

Quote:
Originally Posted by Business-education View Post
One of the best notes I have ever found. Nice '
'
Most important point in these answer is an ethical behavior. When your business do no have the trust factor in it. its growth won't take place. Even if your ideas are big but if people don't trust then its a waste. Nice one....!!!!!!!

Yup, I really liked the Financial Management Axioms. Please post more if you have any.
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