Lesson 1

• Finance can be defined as...?

  The science and art of managing money
• At the personal level, finance is concerned with individuals' decisions about:?

  earning they spend

  save

  savings
• In a business context, finance involves:

  firms raise money from investors

  firms invest money in an attempt to earn a profit

  firms decide whether to reinvest profits in the business or distribute them back to investors
• Financial Services is the area of finance concerned with the design and delivery of advice and financial products to individuals, businesses, and government.
• A sole proprietorship is a business owned by one person and operatied for his or her own profit.
• A partnership is a business owned by two or more people and operated for profit.
• A corporation is an entity created by law.
• Cooperatives are people-centered enterprises owned, controlled and run by and their members to relies their common economic, social, and cultural need and aspirations.
• Financial means procuring sources of money supply and allocation of these sources on the basis of forecasting monetary requirement of the business.
• management refers to planning, organizing, directing, and controlling human activities and organizational resources effectively and efficiently for achieving goals of the enterprise.
• Financial Management means planning, organizing, directing, and controlling the financial activities such as procurement and utilization of funds of the enterprise.
• Financial management is generally concerned with procurement, allocation, and control of financial resources.
• Financial management is mainly concerned with the proper management of funds.
• Financial Management (Corporate Finance) decisions on acquiring assets, raising capital, maximize its value.
• Capital Market, relates to the market where interest rates are determined
• Investment, decisions concerning stocks and bonds.
• The principle of risk and return, rates of return
• the time value of money principle, inflation rate, value decreased when time passes.
• cash flow principle, cash inflow and outflow, prefers earlier more benefits.
• The principle of profitability and liquidity, investors perspective on marketability of investment, ensure maximization of profits.
• Principles of diversity, optimum portfolio through diversification of investment, invest in risk-free investment
• The hedging principle of finance, loan from appropriate sources (provides protection), financing used to long-term sources.
• Investment Decision

  Long-Term Assets - capital budgeting/fixed assets

  Short-Term Assets - working capital management
• Financing decision

  Financing mix, the mix of debt and equity/capital structure
• Dividend Decision, maximizes the value of shares and wealth of the shareholders
• Decision rule for manager: only take actions that are expected to increase the share price.
• Profit maximization (traditional approach) allocation of resources for profitable and desirable areas for short-term concept
• Wealth maximization (modern approach) real net present value maximization concern with cash flow, earnings per share of shareholders and social value.
• Stakeholders are groups such as employees, customers, suppliers, creditors, owners, and others who have a direct economic link to the firm.