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Fundamental Concepts and Tools of Business Finance
Fundamental Concepts and Tools of Business Finance
Fundamental Concepts and Tools of Business Finance
Basic Concepts
Finance
Study of the acquisition and investment of cash for the purpose of enhancing value and wealth.
Categories of Finance
Public Finance general finance which deals with revenue and expenditure patterns of the government and their various effects on the economy.
Basic Concepts
Categories of Finance
Private Finance area of general finance not classified under public finance.
Personal Finance concerned with fundmentals of managing ones own personal money and affairs. Finance of Non-Profit Organizations includes private undertakings such as charity, religion, and some private educational institutions.
Business Finance
Business Finance refers to the provision of money for commercial use. Also concerned with the effective use of funds. Covers the financial management of private-profit seeking concerns in the business of service, trade, manufacturing, mining, public utilities, and financing May be concerned with the following 3 Aspects:
1. Small business finance 2. Corporation finance 3. Multinational Business finance
Maximizing profits while at the same time maintaining a cash balance that can take care of cash requirements anytime.
Maximizing the current value of the company to its owners. Net present worth of a company is equal to the value now of the firm plus values arising in the future.
Time Value of Money money increases in value with the passing of time.
A firm can set a goal of achieving the best possible combination of risk and return. Return on investment is the net income generated by the use of investments or the net worth. When expressed in percentage it is called the Rate of Return.
Assets
Current Assets Trade Investments Fixed Assets Intangible Assets
Liabilities
Accounts Payable Loans and Notes Payable Advances from customers Accrued Expenses Mortgage Expenses Bonds Payable
Net Worth
Capital Stock Common Preferred Paid-in Surplus
Revenues Expenses Cost of Goods Manufactured and Sold Operating Expenses Other Expenses Other Income Net Profit or Net Loss
Annual Reports
A report sent annually to the stockholders Contains the following: 1. Balance Sheet 2. Profit and Loss Statement 3. Auditors report 4. Chairmans report
Next Meeting
Readings
Continuation of Chapter 3, 4 and 5
Quiz
Review on Chapter 1 and 2