II-BUSFIN

• Finance


  The study of fund management and asset allocation over time
• Time

  • The two main drivers of finance are the time value of money and risk
  • Since the value of assets changes over time, finance seeks to ensure the change is beneficial for the organization or individual
  • Financial professionals generally operate in an environment of uncertainty where they must make forecasts about future events
• Investment


  A placement of capital in expectation of deriving income or profit from its use
• Asset


  Something or someone of any value; any portion of one's property or effects so considered
• Debtor


  A person or firm that owes money, one in debt, or one who owes a debt
• Time value of money

  Money today is worth more than the same amount of money in the future
• Risk


  Making an investment does not guarantee a return
• Ferdinand K. Constantino, the Chief Financial Officer (CFO) of San Miguel Corporation, is in charge of making sure all of SMC's assets are allocated as optimally as possible
• Finance


  The study of how to optimally allocate assets - how individuals and organizations should invest assets in order to get the highest possible return given changing conditions over time
• Economics


  The social science that analyzes the production, distribution, and consumption of goods and services
• Accounting


  The process of communicating financial information about a business
• Finance is fundamentally a forward looking field, concerned with what an asset will be worth in the future
• Economics is fundamentally the study of cause and effect, trying to figure out how one variable affects economic agents or the economy as a whole
• Accounting is fundamentally a backward-looking field, concerned with what has already happened financially and what position that leaves the company in today
• The balance sheet is one of the three main financial statements, along with the cash flow statement and the income statement
• Finance, economics, and accounting overlap in many areas and it is almost impossible to have a strong grasp of one without at least a basic understanding of the other two
• Corporate finance


  The area of finance dealing with monetary decisions that business enterprises make
• Shareholder


  One who owns shares of stock
• Liability


  An obligation, debt or responsibility owed to someone
• The primary goal of corporate finance is to maximize shareholder value
• The finance department figures out how to best invest a company's money and determines when a company should take on a liability
• The role of finance in an organization is to make sure that money is at the right place at the right time
• Investment decision


  Revolves around how to best allocate capital to maximize their value
• Financing decision


  Revolves around how to pay for investments and expenses. Companies can use existing capital, borrow, or sell equity
• Expected return


  Considering the magnitude and likelihood of exogenous events, the yield that an investor predicts s/he will earn on average
• Financing


  A transaction that provides funds for a business
• Equity


  Ownership, especially in terms of net monetary value, of a business
• The three main criteria for investments are: 1) It must maximize the value of the firm, after considering the amount of risk the company is comfortable with 2) It must be financed appropriately 3) If there is no investment opportunity that fills (1) and (2), the cash must be returned to shareholders in order to maximize shareholder value
• Companies can finance investments using their own money, taking on debt, or selling equity
• The corporate finance department is in charge of budgeting and determining the optimal allocation of assets across all business functions
• The corporate finance department must balance both short- and long-term company goals, though the overarching goal is to maximize shareholder value
• Cost of option


  Quantifiable cost
• Finance department's job


  Ensure overall cost isn't too high and company has optimal mix of strategies
• Corporate finance public job function

  Determining whether or not the company pays a dividend, and if so, how much
• Paying a dividend


  Puts cash directly in the hands of shareholders, increasing shareholder value
• Not paying a dividend, reinvesting money


  Value of the company will presumably increase, in turn increasing shareholder value
• Finance department's role


  Determine which option (paying dividend or reinvesting) maximizes shareholder value
• Finance department's responsibility


  Ensure good balance between long- and short-term goals
• Working capital management


  Having enough assets to cover short-term costs
• Long-term growth


  Having enough invested to ensure the company has long-term growth