Introduction to Business Finance

Managers climbing the corporate ladder find the further they go the more they
need to understand the concepts and jargon of finance, both for internal decision
making and external interactions with investors, bankers and the other
stakeholders in the financial world.
It is normally the case that managers have not received any formal training in
finance. Furthermore, they are not in a position to take much time out from their
business tasks to dedicate themselves to detailed study. Hence they need to
broadly understand the basic concepts, the broad framework for decision
making, and familiarise themselves with the “language” of finance and
accounting.
The imperatives of day-to-day management mean that all middle and senior
level executives must have a good grasp of the basic financial issues. This is
crucial to figure out the “economics” of business decisions and arrive at
decisions which are commercially prudent and justifiable. These issues touch
every aspect of the business, ranging from deciding which capital expenditure
projects should be backed , which products need to be pushed for better
profitability, where the initiatives for cost control is going to be most impactful
and what needs to be done to add to shareholder value.
Discussions at the Boardroom level – which inevitably percolates down – is
mostly couched in financial terms. What rate of return are we achieving, have we
secured the projected benefits of the merger, how are we planning to contain
the foreign exchange risks; at what level we should fix the channel partners
margins; how do we value a potential acquisition; why are our profits not
growing despite growth in volumes and turnover etc. Because the language of
business is largely financial, managers need to understand it to know what is
going on and what more needs to be done. They also need to read and
comprehend the financial news to appreciate the wider environment in which the
business operates. How can they expect to make senior level decisions without
understanding the world around them ?
The scope of corporate and business finance includes, amongst others, the
following key issues facing management.

 How do we improve profitability of our business ?

 How do we create greater shareholder value
 In what projects should we be investing our money ?
 How do we measure and manage risk ?
 How do we encourage managers to act more like owners ?

GC : 28 April 2020