Business Finance Terminology

Business Finance Terminology

• Collateral: Security pledged for repayment of a loan, forfeited in case of default.
• Financial Management: Science and art of managing money.
• Personal Finance: Managing personal finances based on goals and desires.
• Policy: Set of guidelines or rules determining a course of action.
• Public Finance: Funding used to provide public services.
• Profit: Financial benefit when revenue exceeds expenses.
• Return: Change in value of an asset over time, can be positive (gain) or negative (loss).
• Risk: The degree of uncertainty and potential financial loss inherent in an investment decision.
• Shareholder: Someone who owns shares in a company.
• Bulls: Symbolize optimism and growth in the market.
• Bears: Symbolize falling prices in the market.
• Banks: Financial institutions that accept deposits, offer loans, and generate income through interest.
• Brokerage Firms: Offer investments in stocks.

Key Participants in the Financial System

• Lenders: Provide funds (individuals, banks, institutions).
• Borrowers: Receive funds (individuals, companies, governments).

Types of Financing

• Direct Financing: "Market-based financing" where borrowers raise funds directly from lenders.
• Indirect Financing: Financial intermediaries facilitate the flow of funds between lenders and borrowers (e.g., banks, insurance companies).

The Financial System

• Bangko Sentral ng Pilipinas (BSP): Philippine central bank responsible for supervising and regulating financial institutions.
• International Monetary Fund (IMF): Oversees the global financial system to achieve sustainable growth and prosperity for member countries.

Types of Financial Institutions

• Depository Institutions: Accept deposits and provide traditional banking services.
• Non-Depository Institutions: Offer financial services like insurance, mutual funds, pension funds, and brokerage services.

Profit Maximization vs. Wealth Maximization

• Profit Maximization: Focuses on short-term profitability and immediate gains.
• Wealth Maximization: Aims to increase the business's value and the value of its shares held by stockholders.

Role of a Financial Manager

• Financing Decisions: Managing the company's capital structure.
• Investing Decisions: Allocating funds to profitable projects and assets.
• Operating Decisions: Making decisions to optimize day-to-day operations.
• Dividend Policies: Deciding how much profit to distribute to shareholders.

Corporate Organizational Structure

• Board of Directors (BOD): Representatives of shareholders overseeing the business.
• President and Chief Executive Officer (CEO): Focus on growing company value and wealth maximization.
• Vice-President for Sales and Marketing: Responsible for revenue growth and customer relationships.
• Vice-President for Production: Oversees the production of goods and services.
• Vice-President for Administration: Manages human resources and general administrative functions.
• Vice-President for Finance or Chief Financial Officer (CFO): Supervises all financial activities, planning, and managing financial resources.
• Treasurer: Manages external financing, cash, investments, and financial resources.
• Controller: Responsible for internal accounting and financial reporting.

Test your knowledge of essential business finance terminology. This quiz covers key terms such as collateral, financial management, and risk. Perfect for students and professionals looking to reinforce their understanding of finance concepts.