Introduction to Finance: Decision-making and Tools

Study Notes

Finance is the application of economic principles to decision-making that involves the allocation of money under conditions of uncertainty.
It provides a platform for funds to be transferred from those who have them to those who need them.

Focuses on the study of the financial system, the structure of interest rates, and the pricing of risky assets.
The financial system consists of three components:
- Financial markets
- Financial intermediaries
- Financial regulators

Also called business finance or corporate finance
Concerned with financial decision-making within a business entity
Financial managers are primarily concerned with investment decisions and financing decisions within organizations

Public Finance:
- Deals with the revenue and expenditure patterns of the government and their effects on the economy
Private Finance:
- A. Personal Finance:
  - Concerned with managing one's own personal money affairs
- B. Finance of Non-profit Organizations:
  - Includes private undertakings such as charity, religion, and some private educational institutions

Refers to the provision of money for commercial use
Concerned with the effective use of funds, covering financial management of private profit-seeking concerns
Three categories of business finance:
- Small business finance
- Corporation finance
- Multinational business finance

Basic financial statements:
- Statement of Financial Position (Balance Sheet)
- Statement of Income (Profit and Loss Statement)
- Statement of Cash Flows
Balance Sheet:
- Statement produced periodically, showing an organization's assets, liabilities, and ownership equity
Assets:
- Classified as:
  - Current Assets
  - Trade Investments
  - Fixed Assets
  - Intangible Assets
Current Assets:
- Composed of cash, bank deposits, and other items readily convertible into cash
- Includes accounts receivable, stocks, work-in-process, and marketable securities