Spe Top. Lesson 1

• finance is the management of money and includes activities such as investing, borrowing, lending, budgeting, saving and forcasting
• Financial Management is strategic planning, organizing, directing and controlling of financial undertakings in an organization or a company. I
• Financial Management is the practice of handling a company’s finances in a way that allow it to be successful and compliant with regulations.
• Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.
• Financial decisions – they relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.
• Dividend decisions – the finance manager has to take decision with regards to the net profit distribution.
• Net profits are generally divided into two:

  dividend for shareholders and retained earnings
• Dividend for shareholders – dividend and the rate of it has to be decided.
• Retained profits – amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.
• financial management is generally concerned with procurement, allocation and control of financial resources of a concern.
• Estimation of capital requirements. A finance manager has to make estimation with regards to capital requirements of the company.
• Determination of capital composition. Once the estimation has been made, the capital structure has to be decided. This involves short – term and long – term debt equity analysis.
• Choice of source of funds. For additional funds to be procured, a company has many choices
• Choice of source of funds. For additional funds to be procured, a company has many choices
• Investment of funds. The finance manager has to be decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible.
• Disposal of surplus. The net profits decision has to be made by the finance manager.
• Management of cash. Finance manager has to make decisions with regards to cash management, cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, purchase of raw materials, etc.
• Financial controls. The finance manager has not only to plan, procure and utilize the funds but also has to exercise over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.
• Public Finance. The study of income and expenditure of the government. It simply means the collecting and spending of government’s funds.
• Public Income = refers to the income of the government. The government earns income in two ways – tax income and non-tax income. T
• Public Expenditures = is the money spent by government entities.
• Public Debt = When public expenditure exceeds public income, the gap is filled by borrowing money from the public, or from other countries or world organizations such as The World Bank.
• Financial Administration = includes preparation, passing, and implementation of government budget and various government policies.
• Business Finance involves the process of optimizing finances by business organizations.
• Corporate Finance is primarily concerned with maximizing shareholder value through long-term financial planning and the implementation of various strategies.
• Personal Finance. Personal Finance is the process of planning and managing personal financial activities such as income generation, spending, saving, investing and protection.
• The finance function is usually headed by a vice president for finance or Chief Financial Officer (CFO), who reports to the president.
• The Chief Financial Officer (CFO) often distributes the financial management responsibilities between the controller and the treasurer.
• The controller normally has responsibility for all accounting – related activities.
• Financial Accounting. This function involves the preparation of the financial statement for the firm, such as the balance sheet, income statement, and the statement of cash flows.
• Cost Accounting. This department often has responsibility for preparing the firm’s operating budget
• Taxes. This unit prepares the reports that the company must file with the various government (local, state and federal) agencies.
• Data Processing. Given its responsibilities involving corporate accounting and payroll activities, the controller may also have management responsibility for the company’s data – processing operations.
• Treasurer. It is normally concerned with the acquisition, custody and expenditure of funds.
• Cash and Marketable Securities Management. This group monitors the firm’s short – term finances forecasting its cash needs, obtaining funds from bankers and other sources when needed, and investing any excess funds in short – term interest – earning securities.
• Capital Budgeting Analysis. This department is responsible for analyzing capital expenditures that is, the purchase of long – term assets, such as new facilities and equipment.
• Financial Planning. This department is responsible for analyzing the alternative sources of long – term funds, such as the issuance of bonds or common stock, that the firm will need to maintain and expand its operations.
• Credit Analysis. Most companies have a department that is responsible for determining the amount of credit that the firm will extend to each of its customers.
• Investor Relations. Many large companies have a unit responsible for working with institutional investors (
• Pension Fund Management. The treasurer may also have responsibility for the investment of employee pension fund contributions.