What are the linkages among financial decisions, return, risk and stock value for this firm? The firm I selected for this discussion is Nike. Nike is the #1 brand in sporting goods industry, regarded as one of the top marketing firms and considered a "Blue Chip" stock. The financial decisions a firm makes will impact all areas of the company as well as the perceived value from outside investors. Key decisions such as how to manage working and investment capital, raise money (borrow or equity) and manage assets/liabilities will impact the bottom line and profitability. Nike for example, invests heavily each year in key areas such as marketing (over $3 billion annually in advertising) and R & D to ensure they have the lightest and most sturdy products on the market. These financial decisions factor in risk and return and for decades Nike has balanced this by taking risks that have resulted in positive returns. Nike has been on the cutting edge of marketing (commercials and sponsorships with athletes like Jordan and Woods) and determined the risk of investing heavily in these areas would provide a considerable return and they were right. Nike has also acquired some competitors over the years (Converse/Umbro) that demonstrate the diversity in their financial decision making and how to use assets to continue to increase market share and profits. This combined approach of internal investment in research and development, marketing and expanding foot print by acquiring companies is a good example of a firm making financial decisions to increase value to shareholders. This combination of sound financial decisions along with the ability to make risky yet profitable investments is what makes Nike attractive to investors. Why are these linkages important? These linages are important because as we have learned throughout our readings both managers and investors must look at many factors of a firm's financial soundness to make good decisions. How does the financial manager incorporate these as s/he manages the assets and liabilities of the firm? The financial manager must incorporate all of these areas so that the proper decision is made at the proper time. How to manage assets, investing in short term or long-term investments, do we borrow money to raise funds, keeping a certain degree of liquidity are all areas that a financial manager must balance as decisions are made. All of these decisions impact cash flow, financial statements and how both creditors and investors view the firm so all must maintain a balance. How can stockholders know that these linkages are being managed well? Stockholders can review financial statements and certain key ratios to determine how a firm is managing these areas. As mentioned earlier, Nike is considered a "Blue Chip" stock meaning it has the following characteristics: Less volatile Highly liquid Solid Balance Sheet Little to no debt High ROE and ROA Pays Dividends Stockholders can review all of this information and determine that Nike will be a safe investment with a predictable and reliable return rate. How might these linkages differ in different industries? These linkages will vary between industries because based on benchmarking within that industry. Some industries may require heavy R & D investments like tech or pharmaceutical industries while other industries maintain high levels of inventory that is sold at different rates. Other industries make be more volatile and the risk/return equation is different than a well-established company within certain industries. All of these factors can make a certain value or ratio within one industry look good or bad as compared to other industries so it is important to put context to all of the numbers researched