Entering the world of finance, for those who still feel their first steps in the business field, often very intricate and distant. However, there are various theories and models to help you learn, without much fuss, the good management of finances at the corporate level. This time, we focus on the model of capital budgeting, basic approach to understanding finance.
Let us start with the following premise: in the market not only as actors operate businesses and markets. There are different parameters involved in the trade and finance. For the model of capital budgeting, also come into action and society “bondholders”. To give clarity to this approach, we will detail below what the role of each of the actors involved:
Led by the General Meeting of Shareholders, is the group of people who are responsible for the executive decisions of the company, exert their function through the control of actions, which can be bought or sold. Shareholders are, in this model, the main beneficiaries of the gains resulting from financial transactions, but also bring the inherent risk involved in such operations.
They are responsible for looking after the interests of the company, i.e. the real interests of the shareholders. To accomplish its purpose, choose the relevant market, and after that, develop investment projects. These investment projects should be financed by own resources held by the company, and once revenues are obtained, these revenues should be distributed to shareholders.
It is the environment where operate business operations. In factual terms, the focus is where the gains and losses of the shareholders of different companies are observed.
While the company is not regarded as one of the cornerstones of this approach it is taken into account for the externalities generated by the company. When we speak of externalities in economic terms, we refer to the social costs created by the production companies regarding our environment.
Read as “borrowers”, bondholders representing entities that give us money for our financial activities. To those, the company keeps a special relationship: being our future source of “fresh” capital.
The model presented is one of the most basic that can be found in the field of finance. Like all models, it is only a guide to get into one, but not impregnable complicated world. We hope that this little guide can be initiated in the competitive world of finance.