The Three Big Questions Every Company Faces

Corporate finance is the study of how companies make money decisions, and nearly every one of those decisions boils down to three questions: what should we invest in, how should we pay for it, and what should we do with any money left over? These are usually called the investing decision, the financing decision, and the payout decision.

The investing decision covers things like building a new factory, launching a product, or acquiring another company — anything the company spends money on hoping it pays off later. The financing decision covers how that spending gets funded: borrowing money, selling shares, or using cash the company already has. The payout decision covers what happens to profit: reinvest it, pay it out as a dividend, or buy back shares.

The decision about how to fund a company's spending — borrowing, selling shares, or using existing cash — is called the ____ decision.

This three-question framework is the spine of this entire track. Reading financial statements, valuing a company, understanding mergers, and building a financial model are all really just different tools for answering one of these three questions more precisely, for a real company in a real situation.

Which of the following are the three core questions of corporate finance?

The payout decision covers what a company does with leftover profit, such as reinvesting it, paying dividends, or buying back shares.