business finance

defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting

finance

Investing personal money in stocks, bonds.

investing

Borrowing money from institutional investors by issuing bonds on behalf of a public company

borrowing

Lending money to people by providing a mortgage to buy a house with

lending

Using excel spreadsheets to build a budget and financial model for a corporation

budgeting

Saving personal money in a high interest savings account

saving

government spending and revenue collection

forecasting

Finance can be defined as the science and art of managing money. (Gitman & Zutter, 2012)

finance

• Recordkeeping /bookkeeping function

• Preparation of Financial Report

accounting

• Management of money, funds or resources

• Use for making financial decision

finance

basic areas of finance (4)

• corporate finance (business finance)

• investments

• financial institutions

• international finance

• Work with financial assets such as stocks and bonds

• Value of financial assets, risk versus return, and asset allocation.

investments

• Companies that specialize in financial matters

• Banks, credit unions, savings and loans

• Insurance companies

• Brokerage firms

financial institutions

• Need to be familiar with exchange rates

• Political risk

• Customs of other countries

• Speaking a foreign language

international finance

Deals with the capital structure of a corporation, including its funding and the actions that management takes to increase the value of the company.

corporate or business finance

Means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise.

financial management

different individuals involved in finance

• Chief Financial Officer (CFO)

• treasurer

• controller

Usually the top financial manager within a firm

chief financial officer (cfo)

oversees cash management, credit management, capital expenditures, and financial planning

treasurer

oversees taxes, cost accounting, financial accounting, and data processing

controller

functions of a financial manager

• estimating the requirements of funds

• decision regarding capital service

• investment decisions

• dividend decision

• supply of funds to all parts of the organization or cash management

• evaluating financial performance

• financial negotiations

combination of debt (loan) and equity (own funds) used by a company to finance its overall operations and growth

capital structure

Financial Institutions are organizations or companies in the financial sector that provide a broad range of business and services including banking, insurance, and investment management.

financial institutions

financial institutions

• banks

• credit unions

• trust companies

• mutual funds

• pension funds

• insurance companies

• investment institutions

Institutions that accept deposits and bills payment, provide loans, and facilitate the transfer of funds locally and abroad.

banks

banks

• thrift banks

• commercial banks

• universal banks

• investment banks

Deposit-taking financial institutions that also extend credit to the consumer market. It usually cater to the countryside or rural areas.

thrift banks

Deposit-taking financial institutions that also extend credit to the retail and consumer market. They deal with the “mom and pop stores” and their transactions are usually many but small, denominated in the local currency.

commercial bank

lend to multinational companies or companies with global presence. Their transactions are larger than commercial banks and denominated in multicurrencies.

universal bank

Known to successfully raise funds for big corporations and government. They deal with the “big ticket items” and are able to raise funds from the “investing public” through bond issuance and initial public offerings.

investment bank

Acts as a trustee on behalf of an individual for the purpose of management, administration, and distribution of property to the target beneficiary.

trust companies

Exist to help and extend financial assistance to the members by pooling and accumulating funds from all the members.

credit unions

Collective investments or funds of small investors pooled together and managed to be able to reach maximum returns.

mutual funds

Set up by a business for the purpose of paying the pension requirements of all private-sector employees who retire from the business organization.

pension funds

Provides protection against the risks inherent to the business or life of the individual, in return, they have to pay premium to the insurance company in exchange for the benefit when risk happens.

insurance companies

• Companies that are engaged with buying financial securities of other companies for investment purposes only. These financial securities are held up to the time of their maturity and earns income in the form of interest or dividends.

• Usually composed of wealthy investors.

investment institutions

Tools that help a business’ daily operations, and eventually make it grow. These tools help the finance manager to handle cash, short-term operating requirements, and long-term business requirements.

financial instruments

most common forms of financial instruments

• cash

• check

• loan

• bond

• stock

has no voting rights on the company

preferred stock

has voting rights in the company

common stock

financial markets

• primary market

• secondary market

• money market

• capital market

It is where corporation can issue new shares of stock.

primary market

It is where financial securities are traded between or among the investors. Exist after the corporation has issued new shares to the investors in the primary market.

secondary market

It is a market where stocks and bonds are issued for long term periods.

money markets

It is a market that trades commercial papers and treasury bills. Trading securities are intended to be held for less that one year. (short term)

capital markets

an important aspect of the firm’s operations because it provides road maps for guiding, coordinating, and controlling the firm’s actions to achieve its objectives (Gitman & Zutter, 2012)

planning

Defined as the forecasting of a business for future financing requirements and is also about setting goals and identifying ways to achieve them.

financial planning

SMART stands for

• specific

• measurable

• attainable

• relevant

• time-bound

6 steps in financial planning

• SET GOALS & OBJECTIVES

• IDENTIFY RESOURCES

• IDENTIFY GOAL-RELATED TASKS

• ESTABLISH RESPONSIBILITY CENTERS FOR ACCOUNTABILITY AND TIMELINE

• ESTABLISH AN EVALUATION SYSTEM FOR MONITORING AND CONTROLLING

• DETERMINE CONTINGENCY PLANS

These has shown in company’s vision and mission statements.

SET GOALS & OBJECTIVES

include production capacity, human resources who will operate the operations and financial resources

IDENTIFY RESOURCES

Management must figure out how to achieve an objective.

IDENTIFY GOAL-RELATED TASKS

department held accountable for this task.

ESTABLISH RESPONSIBILITY CENTERS FOR ACCOUNTABILITY AND TIMELINE

The management must establish a mechanism to allow plans to monitor. This has been done, through quantified plans such as budgets and projected financial statements.

ESTABLISH AN EVALUATION SYSTEM FOR MONITORING AND CONTROLLING

contingencies or unforeseen events must be considered as well. Budgets and projected financial statements anchored on assumptions.

DETERMINE CONTINGENCY PLANS