Introduction to Business Finance

Introduction to Business Finance

• Business finance involves managing money, including activities like investing, borrowing, lending, budgeting, saving, and forecasting.

Learning Objectives

• Students will discuss the nature of finance, financial management, and the roles of individuals involved.
• Students will explain the function of a financial manager.

Finance

• Defined as managing money, encompassing activities like investing, borrowing, lending, budgeting, saving, and forecasting.

Key Areas of Finance

• Investing: Includes investing personal money in stocks and bonds.
• Borrowing: Obtaining money from institutional investors by issuing bonds.
• Lending: Providing money to individuals for mortgages.
• Budgeting: Creating and managing budgets using spreadsheets.
• Saving: Storing personal money in high-interest savings accounts.
• Forecasting: Predicting future government spending and revenue.

Basic Areas of Finance

• Corporate Finance (Business Finance): Deals with a corporation's capital structure, funding, and actions to maximize company value.
• Investments: Managing financial assets like stocks and bonds.
• Financial Institutions: Organizations specializing in handling financial matters (e.g., banks, credit unions, insurance companies, brokerage firms).
• International Finance: Managing finances in a global context, considering exchange rates and political risks of other countries.

Investments

• Working with financial assets like stocks and bonds.
• Evaluating asset value, risk, return, and allocation strategies.

Financial Institutions

• Businesses specializing in financial matters (e.g. banks, credit unions, insurance companies, brokerage firms)

International Finance

• Understanding exchange rates and political risks.
• Familiarity with customs and foreign languages is crucial.

Corporate Finance

• Managing the capital structure, funding, and strategies to increase a corporation's value.
• Key responsibilities include capital budgeting decisions (long-term investments), capital structure decisions (funding investments), and working capital management (day-to-day operations cash flow)

Financial Management

• Planning, organizing, directing, and controlling financial activities related to procuring and using enterprise funds.

Sample Organization Chart

• Shows a hierarchical structure of roles in a company, often with a CEO at the top followed by departments like Human Resources, Finance & Accounting, Sales & Marketing, Research & Development, and Operations, and specialized teams.

Different Individuals Involved in Finance

• Vice President-Finance/CFO (Chief Financial Officer): Oversees financial planning, strategic corporate planning, and managing cash flow.
• Treasurer: Manages cash, credit, capital expenditures, and financial planning.
• Controller: Handles taxes, cost accounting, financial statements, and data processing.

Functions of a Financial Manager

• Estimating Fund Requirements: Determining the necessary funds, including working capital (daily operations).
• Forecasting Requirements: Using budgetary control to manage income, expenditure, and long-term planning.
• Capital Structure Decisions: Determining the best blend of debt (loans) and equity (own funds) for financing operations and growth.
• Investment Decisions: Strategically allocating funds to various assets.
• Dividend Decisions: Deciding dividend payouts to shareholders and retained earnings.
• Cash Management: Ensuring adequate cash flow to all company units (branches, factories etc.)
• Performance Evaluation: Evaluating financial performance to identify areas for improvement.
• Financial Negotiations: Negotiating with financial institutions, banks, and depositors.

Explore the fundamentals of business finance, including key concepts such as investing, borrowing, lending, budgeting, and forecasting. This quiz will help you understand the roles of financial managers and the importance of financial management in personal and corporate contexts.