Business Finance and Investment

OBJECTIVES:
Define finance and financial management;
Discuss the areas of finance;
Differentiate accounting and finance;
Discuss the real goal of business;
Discuss the responsibilities of a financial
manager and its team;
Describe the different legal forms of
business organizations and discuss its risks;
 FINANCE is a body of facts, principles, and
theories relating to raising and using money
by individuals, businesses, and governments.
This concerns both financal management of
profit-oriented business organizations, as
well as, concepts and techniques that are
applicable to individuals and to governments.
 Corporate Finance
Focuses on decisions relating to:

Finance can •How much and what types of assets to acquire

•How to raise the capital needed to purchase
assets

be divided
•How to run the firm so as to maximize its value

Capital markets

into three Capital markets are where savings and

investments are channeled between suppliers
—people or institutions with capital to lend or

areas:
invest—and those in need. Suppliers typically
include banks and investors while those who
seek capital are businesses, governments, and
individuals.

Investments
-Focuses on the decisions made by both
individuals and institutional investors as they
choose securities for their investment portfolios
-It relates to decisions concerning stocks and
bonds.
 Finance refers to sources of money for a
business. Firms need finance to start up a
business, to pay for premises, new
equipment and advertising.
Firms need finance to run the business,
to pay staff wages and suppliers on time.
Money is the lifeblood of a
business and finance is the
nerve center. The goal of
any finance function is to
achieve three benefits:
Business support service,
Lowest costs, and
Effective control of the
environment.
IS FINANCE THE SAME AS ACCOUNTING?
 ACCOUNTING focuses on the day-to-day
flow of money in and out of a company or
institution, whereas FINANCE is a broader
term for the management of assets and
liabilities and the planning of future
growth.
Real financial management starts
where accounting ends.
 FINANCIAL MANAGEMENT
Financial Management, also referred to as business
finance, managerial finance, and corporate finance, is
a decision making process concerned with planning,
acquiring, and utilizing funds in a manner that achieves
the firm's desired goals. It is also descibed as the
process for and the analysis of making financial
decisions in the business context.
 FINANCIAL STRATEGY

A financing strategy is integral to an organization's

strategic plan. It sets out how the organization plans
to finance its overall operations to meet its objectives now
and in the future. A financing strategy summarizes targets, and
the actions to be taken over a three to five year period to
achieve the targets. You can only achieve effective financial
management if you have a sound organizational plan.
 WHAT IS THE PRIMARY
POINT/GOAL OF BUSINESS?
Accounting says
MAXIMIZE PROFITS.

Finance says
MAXIMIZE WEALTH OF
STOCKHOLDERS.
The generally accepted goal of the
firm is to maximize the wealth of its
common stockholders through the
value of its common stock [Kolb &
Demong, 1988].
Financial management opposes profit
maximization as the main objective
because (1) a change in profit is also a
change in risk, (2) it fails to determine
the timing of benefits, and (3)
accounting profits cannot be
measured accurately.
WHAT IS THE ROLE OF A
FINANCE MANAGER?
The responsibilities of a
finance manager include:
Investment Decisions
Financing decisions
Dividend policy decisions
Operating Decisions
01
Investment 02
Financing 03
Dividend
Decisions Decisions Decisions
Investment decisions are Include making decisions as to Dividend is a part of profits
those which determine how how to finance long-term that are available for
scarce or limited resources investments and working distribution, to equity
in terms of funds of the capital-which deals with the shareholders. The Finance
business firms are day-to-day operations of the manager must decide whether
committed to projects. company. the firm should distribute all
the profits or retain them or
To minimize the probability distribute a portion and retain
of failure, long-term the balance.
investments have supported
by a capital budgeting
analysis.
 04 Operating Decisions

Deal with the daily operations

of the company especially on
how to finance working capital
accounts such as accounts
receivable and inventories.
ORGANIZATIONAL CHART

Financial responsibilities
are carried out by the
Chief Finance Officer
Treasurer
Controller
 01
Chief Finance 02 Treasurer 03 Controller
Officer
The financial management The treasurer's office is The Controller's Office
function is usually associated with responsible for managing the handles cost and financial
the top officer of the firm such as firm's cash and credit, its accounting, tax payments, and
VP for finance or some Chief financial planning, and its management information
Financial Officer (CFO). He capital expenditures. systems.
determines the appropriate
capital structure of the company
He coordinates the activities of
the treasurer and contorller.

*Capital structure refers to how much of your

total assets financed by debt and how much is
financed by equity.
RISK WITHIN THE BUSINESS
ORGANIZATIONS
 Basics of financial management are same for all
businesses regardless how they are organized.

Still a firm’s legal structure affects it’s operations and

thus should be recognized.
THANK YOU!