WHAT IS FINANCE?

A branch of economics
concerned
with
resource
allocation as well as resource
management, acquisition and
investment.

Finance deals with matters

related to money
To raise money through the
issuance and sale of debt

To provide or raise the funds of

capital
finance = Equity + Debt

So, finance is the combination of

equity and debt.

What is financial
Management
The planning, directing, monitoring,
organizing, and controlling of the
monetary resources of an organization.
It is an area of finance dealing with
financial decision business enterprise
make and the tools and analysis used to
make this decision.
Financial Management can be defined as:
The management of the finances of a
business organization in order to achieve
financial objectives,

The key objectives of

financial management
would be to:
Create wealth for the business
Generate cash, and
Provide a sufficient return on
investment bearing in mind the
risks that the business is taking
and the resources invested.

Three Elements of Financial

Management
1. Financial Planning

Management need to ensure that enough

funding is available at the right time to meet
the needs of the business.

In the short term, funding may be needed to

invest in equipment and shares, pay
employees and fund sales made on credit.

In the medium and long term, funding may be

required for significant additions to the
productive capacity of the business or to
make acquisitions.

2. Financial Control: Financial control is a critically important

activity to help the business ensure that
the business is meeting its objectives.
Financial control addresses questions
such as:
Are assets being used efficiently?
Are the businesses assets secure?
Do management act in the best interest
of shareholders and in accordance with
business rules?

3. Financial Decision-making: The key aspects of financial decision-making

relate to investment, financing and dividends:
Investments must be financed in some way
however there are always financing
alternatives that can be considered. For
example it is possible to raise finance from
selling new shares, borrowing from banks or
taking credit from suppliers.
A key financing decision is whether profits
earned by the business should be retained
rather than distributed to shareholders via
dividends. If dividends are too high, the
business may be starved of funding to reinvest
in growing revenues and profits further.

THREE AREA OF
CAPITAL

1. Capital Budgeting
It is the planning process used to
determine whether a forms long term
investment. i.e. new
machinery,
replacement of machinery, new plans,
research and development project etc.
Value of cash flow generated by an
assets should be greater than the cost
of that assets
Note only how much cash expected to
receive but also
when and how

2. Capital Structure:It refers to the way a corporation finances its

assets through some combination of equity
and debt.
It is the mixture of long term debt and equity.

First goals Mixture will be effect both the risk

and the value of the form.
What are least expensive sources?
Debt comes in the form of bond issues or
long-term notes payable, whereas equity is
classified as common stock, preferred stock,
or retained earnings. Short-term debt such as
working
capital
requirements
also
is
considered part of the capital structure.

3. Working Capital

Management
It refer to the short term
assets and short term
liabilities. In
short we can say that day
to
day activities
In working capital management,
we only study
about the current
assets and current liabilities.