Although the prospectus and proxy statements can provide us with almost complete view about the company's financial position and competitive edges .Sometimes, it does not provide us with enough information to distinguish the investment that will leads us to moderately successful investment or to complete failure.
PT Semen Baturaja is one of the example. Despite the company's financial position and competitive edge from their competitor due to their cement factories location its shareholder saw their investment money evaporate. Since PT Semen Baturaja held its IPO in May 2013, the stock price has drop more than 50% from the IPO price.
In the real world of finance, there are many securities with uncertain returns. This uncertainty translates into an exposure to risk. When it comes to selecting stocks, the rewards for proper action are so huge and the penalty for poor judgement is so great that it is futile for investor to buy stock based on superficial knowledge.
The author believe that the market price fluctuation of one corporation is highly influenced by how people in the corporation make financial decisions. Therefore, investor's understanding on how the corporate finance applies to the financial decisions made within the company is necessary.
On the next post, the author will focus on how the financial decisions are made in the corporation
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