Modern Capital Management Techniques and Financial Innovation

One of the most vexed topics in the field of corporate finance is the valuation of a company’s wealth, both in the context of analysis of the cash flows which the company generates, as well as in relation to the market’s perception of that wealth. The link between the composition of the firm’s balance sheet, the value of its income-producing assets, and the price investors will pay for the risks and returns available from the company are complex and still not fully understood. Nevertheless, there is an emerging consensus that a balance sheet can be constructed in such as way as to maximize the attractiveness of the ordinary equity of the company. This perspective has led to the use of innovative financial contracts as tools to improve shareholder value.