BUSINESS FINANCE

• Finance is both a science and an art of correct application of the economic and accounting concepts and principles that define the system, structure, and process of management, allocation, and utilization of financial resources, investments, and expenditures.
• Economics – concerned with the efficient utilization of scarce resources.
• Accounting – AICPA “It is an art of recording, classifying, and summarizing in significant manner and in terms of money, transactions, and events in which are in part at least of financial character and interpreting the results therof.”
• BUSINESS FINANCE – focuses on the handling and management of financial resources of business organization.
• FINANCIAL STATEMENTS

  • These are summary of report, showing how the business used its resources and funds.
  • This are concise representation of the effects of business transactions and events of the firm which are primarily financial in nature.
• complete set of financial statements is composed of the following:

  1. Statement of financial position
  2. Statement of comprehensive income
  3. Cash flow Statement
  4. Statement of changes in Equity
  5. Notes to Financial Statement
• Financial Institutions - Entities that operates financial transactions such as loans, investments and deposits.
• FINANCIAL INSTRUMENTS

  • Tools that help the finance manager in the daily business operation to handle short and long tern operating requirements, and cash funds.
  • It could be any document that represents an asset to one party and liability to another.
  • The most common forms of financial instruments are: Cash, Check, Loan, Bond, Stock
• Money Market Instruments – are affordable way for the financial institutions to raise fund. Traded in short-term period (less than one year)

  • Treasury bill – T-Bills
  • Commercial papers
  • Money market funds
  • Consumer credit, credit card debt
• Long-Term Debt - consists of loans and financial obligations lasting over one year. Also known as long-term loans.

  • example: Bonds and notes
  • Examples:
  • Treasury Notes and Bonds
  • Federal agency debt
  • Municipality bonds, local government bonds
  • Corporate bonds
• Bond - It is a security that describes to pay debt in fixed interest from business or government who promised for a definite period of time.
• Note - it is a security that is shorter term than a bond, but longer term than a money market instrument.
• In the United states long-term debt securities are called medium-term debt securities.