Ten Axioms of Finance

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Ten Axioms that form the foundations of financial management. 1.

Axio Axiom m 1: The The risk risk-r -ret etur urn n trad tradeo eoff ff - we won' won'tt ta additional risk unless we expect to be compensated wit additional return. Almost all financial decisions involv some sort of risk-return trade off.

2. Axiom Axiom 2: The time time value value of money money - a dollar dollar receive receive today is worth more than a dollar received in the future

3. Axiom Axiom 3: Cash -- Not Not Profits Profits -- is King. King. In measur value we will use cash flows rather than accountin prof profit itss beca becaus usee it is only only ca cash sh flow flowss that that the the fi receives and is able to reinvest.

4. Axio Axiom m 4: Incr Increm emen enta tall ca cash sh flow flowss - it's it's only only wh changes that counts. In making business decisions w will only concern ourself with what happens as a resu of that decision.

Master your semester with Scribd Axio Axiom m 5: The curs cursee & The New York 5. Times

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 of competi competiti tive ve market mark etss - why it Not useful  Useful  Cancel anytime. hard hard to find find exce except ptio iona nall lly y prof profit itab able le proj projec ectts. Special offer for students: Only $4.99/month. compet competiti itive ve markets markets extrem extremely ely large large profit profitss cann

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6. Axiom Axiom 6: Efficient Efficient Capital Capital Markets Markets - The markets markets ar quick and the prices are right.

7. Axiom Axiom 7: The agency agency problem problem - manage managers rs won't won't wor for the owners unless it's in their best interest. Th agency problem is a result of the separation between th decision makers and the owners of the firm. As a resu managers may make decisions that are not in line wit the goal of maximization of shareholder wealth. 8. Axiom 8: Taxes Taxes bias bias business business decisions. decisions.

9. Axio Axiom m 9: All risk risk is not equal equal since since some some risk risk can b diver diversi sifi fied ed away away and some some cannot cannot.. The The proc process ess o divers ersificati ation ca can n reduce risk, and as a res measuring project’s or an asset's risk is very difficult. Master your semester withaScribd 

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Axiom 10: Ethical behavior is doing the ri thing, and ethical dilemmas are everywhere in finance

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