What is Finance?

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

Finance is the science or art of managing money.

There are three main types of finance:

(1) personal,
(2) corporate, and
(3) public/government.

Money management

Money management refers to how you handle all of your finances, from budgeting to investing, to
saving and setting goals.

Money management is the key to improving or maintaining your financial situation.

Money Management

Sources of money Profit Uses or Application

15% - 10% = 5% (Investment) of money

Government Rate of return

Bank Loan 15%
Paid-up Capital
Reserve
Bond/Debenture
Foreign Aid

Cost of fund or capital

10%

Legal forms of business

The most common forms of business are

- The sole proprietorship,

- Partnership,
- Corporation or Company.
A sole-proprietorship has one owner who has unlimited liability for the business.

A partnership involves two or more people who combine resources for the business and share profits and
losses.

A corporation is considered to be a separate legal entity from its shareholders. For tax purposes a
corporation is a “Person”.

Particulars of
Sole proprietorship Partnership Corporation
difference

Two or more owners Usually owned by many

Ownership A single owner
(2 to 15/20) shareholders

Profits split equally, or by

Profit or All profits go to the sole Dividends declared and given to
pre-determined terms
losses owner shareholders
amongst the owners

Limited liability – individuals are

The owner has unlimited Usually split amongst the
Liability not usually directly liable for
liability owners based on the terms
activities within the corporation

Owners in the partnership

Decision- All decisions for the firm Board of director and
are responsible for the
making are made by one owner shareholders
decisions

Owner is taxed on his

Owners are taxed on their A corporation is taxed as a
Tax personal income/profit
respective incomes “person”
from the company

What Is an Annual Report?

An annual report is a corporate document disseminated to shareholders that spells out

the company's financial condition and operations or financial performance over the
previous year.

Purpose of the Annual Report

An annual report assesses the corporation's operations and projections for the upcoming
year. Current and any prospective investors, plus employees, analysts, creditors, and
other interested parties, use the annual report to analyze a company. The annual report
can measure a number of things:

• A corporation's ability to pay debts as they are due

• Whether a corporation has turned a profit or operated at a loss during the prior fiscal
year
• A corporation's growth over the years
• Amount of earnings retained by a business to grow its operations
• The proportion of operating expenses to the revenue generated during the prior
fiscal year
Income Statement: An income statement, also called a profit and loss statement, lists a
business’s revenues, expenses and overall profit or loss for a specific period of time. It shows
the company’s financial performance.
An income statement reports the following line items: Sales, Cost of Goods Sold, Gross
Profit, General and Administrative Expenses, Earnings Before Tax and Net Income.
Balance Sheet: A balance sheet reports a business’s assets, liabilities and equity at a
specific point in time. A balance sheet is broken into two main sections: assets on one side
and liabilities and equity on the other side. It shows the company’s financial conditions.
Assets Liability
Current Asset: Current Liability:
Cash, Bank, FDR Liability which will be paid within one year
Account Receivable Installment of loan
Inventory, 50 Cr
Marketable Security
Prepaid

Fixed Asset: Long-term Liability:

Equipment Long-term bank loan/loan from WB, IFC
Land 150 Cr Bond/ Debenture
Vehicle Consortium loan

Total Asset: 200 Cr Owner’s Equity:

Paid-up capital
Share capital
Retained Earnings

Consortium Loan: In consortium lending system, two or more lenders or bank join
together to finance a single borrower or project.

Board of Directors:
A board of directors (B of D) is the governing body of a company, elected by shareholders in the
case of public companies to set strategy and oversee management. The board typically meets at
regular intervals. Every public company must have a board of directors.
Board of Directors (BOD) refers to a corporate body comprising a group of elected people who
represent the interest of a company's stockholders.
A board of directors is an executive committee that jointly supervises the activities of an organization,
which can be either for- a profit or a nonprofit organization such as a business, nonprofit organization,
or a government agency.

Shareholder
A shareholder is any person, company, or institution that owns shares in a company's stock. A
company shareholder can hold as little as one share.
A shareholder is a person or institution that has invested money in a corporation in exchange for
a “share” of the ownership. That ownership is represented by common or preferred shares issued
by the company and held (i.e., owned) by the shareholder.
Example:
Let Revenue or Sale 100 Cr annually, Cost of production 40 Cr, Operating Expense 30 Cr,
Interest 10 Cr, Tax 6 Cr. Total no. of share 1 Cr and decision taken to total dividend pay 4
Taka/share.
Calculate Earnings per Share (EPS) and Retained Earnings.
Solution:
Revenue/Sales 100 Cr
(-) Cost of production 40 Cr
Gross profit 60 Cr
(-) Operating Expense 30 Cr
(Salaries & benefits,
Stationaries
Administrative Cost
Marketing Cost
Advertisement Expense
Depreciations)
Operating Profit (EBIT) 30 Cr
(-) Interest 10 Cr
EBT 20 Cr
(-) Tax 6 Cr
Net Profit 14 Cr

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 14 𝐶𝑟
𝐸𝑃𝑆 = = = 14 𝑇𝑎𝑘𝑎/𝑆ℎ𝑎𝑟𝑒
𝑁𝑜. 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 1 𝐶𝑟
EPS 14 Taka/Share
(-) Dividend 4 Taka/Share
Retained Earnings 10 Taka/Share