Prelim: Lesson 1

Introduction to Finance

What is Finance?

Introduction:

Finance maybe defined as a noun and as a verb.

AS a NOUN- means management of money, the monetary support for an enterprise, or the
money resources of the government, company or a person

AS A VERB –means to provide a capital for person or enterprise

“ NO ORGANIZATION and NO HOUSEHOLD can live or exist without finance.”

Finance: Definition

Derived from the LATIN word “ finer” meaning to “ END” or “ to PAY”. When a person pays his
bills, the financial matter is ended.

 A family needs financial to survive

 Finance and Financial Decisions are part of our daily lives
 Economic activities, like business transactions , personal investment, or even simple
borrowing entail finance or have financial implications
 Government needs to be financed for a country to survive

Other Definitions:

Finance- as operational or practical side of economics , the practical science of production and
distribution of wealth.
Production – acquisition , while distribution – utilization. ( Shetty, et al , 1995)

Finance- efficient allocation of scare resources. Therefore, finance is the efficient acquisition , distribution/
allocation, and utilization of scarce money/fund resources. ( Saldana, 1997)

Finance – as a discipline, is concerned with identifying , evaluation and managing sources and use of
cash in orders to increase he value of the business enterprise to its present owners. (Saldana, 1997).

( Saldna, 1995 definition limits only into Cash)- will replace it to FUNDS

Finance as the study of the acquisition and investment of cash for the purpose of enhancing value and
wealth .

From the forgoing definitions, we can summarize the task that finance entails.

Functions of Finance
Finance therefore, is the FUNCTIONS of:
 1. Allocating available funds
2. Acquiring needed funds; and
3. Utilizing these funds to achieve set goals

ALLOCATION- means determining where to use funds currently available to the firm
ACQUISITION- means obtaining funds from the right sources at the right time
ULITILIZATION – means using the funds

Classification of Finance
1. As to Form of Negotiation
i.Direct Finance- involves in DIRECT Borrowing
ii.Indirect Finance- involves Financial Intermediaries
2. As to User
i.Public Finance- revenue and expenditures patterns of the government
ii.Private Finance- an individual borrowing money from another individual; company borrowing
from financial institutions
1. Personal finance
2. Finance of non-profit organizations
3. Business finance

Finance in the Business World

Business – is any lawful economic activity that involves rendering service; buying and selling goods;
converting raw materials into finished products and selling the same; borrowing
and lending money; acquiring funds and investing the same; extracting mineral
resources; constructions buildings, road, and infrastructure; providing insurance
for a sense of peace; and serving the public like public utilizes, transportation,
and communication entities.

In all these activities, effectively and efficiently acquiring and utilization funds ( finance) make the
difference and that is what business finance is all about.

Efficiency – is all saving time, money or effort.

Effectiveness – is a measure of quality – producing desired results

R4 Mariano, N.D, ( 2014). Elements of finance. Quezon City: Rex Printing Company, Inc pp . 33-37
Prelim: Lesson 2

Introduction to Financial Management

Finance , as a management of money of the money resources itsef.

As a discipline, is concerned with identifying , evaluation and managing sources and use of funds
in orders to increase he value of the business enterprise to its present owners. (Saldana, 1997).

Finance consists of three interrelated areas:

1. Managerial Finance
2. Investment
3. Money and Capital Markets

a. What is Financial Management?

FM , otherwise called managerial finance, is concerned with the management of funds.
It is the efficient and effective allocation, acquisitions , and utilization of funds.

b. Goals of Financial Manager

i.acquisitions of funds with the least cost from the right sources at the right time
ii.effective cash management
iii.effective working capital mgt
iv.effective inventory mtg
v.effective investment decisions
vi.proper asset allocation; and
vii.proper risk mgt
c. Tools used of Financial Managers
i.Financial Policy-Making- tasks f selecting financial goals, developing financial policies, and designing the finance
organizations to carry out the finance functions
ii.Financial Planning and Budgeting- preparation of financial plan ( frecasting, budgting)
iii.Financial Analysis – process of evaluating business performance, projects, investment options, and other finance-
related activities to determine feasibility and profitability.
d. Careers in Finance
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- R4 Mariano, N.D, ( 2014). Elements of finance. Quezon City: Rex Printing Company, Inc pp . 77-84
Finance is the art and science of handling money( Lasher, 2014).
Two areas
1. Investments and financial markets
2. Financial management of companie
 There are separate but related .
 Financial System involves flow of money and paper between the two.
The Changing Focus of Finance: ( Lasher, 2014)
1. Great Deal of attention is given to the goals and activities of the investors
2. Role and functions of Financial Management.
FINANCIAL MANAGEMENT:
 Means the management and control of money and money-related operations within
businesses. (Lasher, 2014)
 Also called corporate finance, focus on decisions related to how much and what
types of assets to acquire, how to raise the capital needed to buy assets, and how to
run the firm so as to maximize its value. ( Brigham, et. al, 2014)
Jobs in FINANCE:

- Banking, investments, insurance, corporates and government. ( Brigham, et. al,

2014)

Finance and Accounting: ( Lasher, 2014).

Accounting – a system of record keeping designed to portray a firm’s operations to the world in
fair and unbiased way . – Records are used periodically to produce Financial Statements that
present the company’s results to anyone who reads them.

Finance Department normally consists of both the accounting department ( accounting) headed
by the controller and the treasury department header by the Treasury ( finance functions).- both
positions report to the CFO – Chief Financial Controller or Chief Financial Officer ( Brigham ,
2014)

Finance vs Economics and Accounting: ( Brigham, et. al, 2014)

Finance- grew out of economics and accounting.

Economics developed the notion that an asset’s value is based on future cash flows the asset
will provide.
Accounting- provided information regarding the likely size of those cash flows.
Finance then grew out of and lies between economics and accounting, so people who work in
fiancé need knowledge of those two fields.