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BUSINESS FINANCE

Finance - is a term broadly describing the study and system of money, investments, and other financial
instruments. It is a field that is concerned with the allocation (investment) of assets and liabilities over space
and time, often under conditions of risk or uncertainty.
Three distinct categories:
 public finance,
 corporate finance, and
 personal finance.
 There is also the recently emerging area of social finance.
Financial Management-means planning, organizing, directing and controlling the financial activities
such as procurement and utilization of funds of the enterprise. It means applying general management
principles to financial resources of the enterprise.
Scope/Elements
1 Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current
assets are also a part of investment decisions called as working capital decisions.
2. Financial decisions - They relate to the raising of finance from various resources which will depend upon
decision on type of source, period of financing, cost of financing and the returns thereby.
3. Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net
profits are generally divided into two:
 Dividend for shareholders- Dividend and the rate of it has to be decided.
 Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and
diversification plans of the enterprise.
Who are the responsible for financial management within the organization?
a. Financial Manager- the one who helps in achieving the goals of the organization.are responsible for
the financial health of an organization. They produce financial reports, direct investment activities, and
develop strategies and plans for the long-term financial goals of their organization.
b. Financial Institution
c. Financial Market
Difference between FINANCIAL INSTITUTIONS and FINANCIAL INSTRUMENTS:
Financial institutions are those institutions that operate in the financial market, providing different services for
a wide range of stakeholder. Usually with financial institutions you are referring only to banks, but actually you
can categorize them in:
Commercial banks Investment banks Insurance companies
Investment funds Debt collectors/servicers
Financial instruments are those instruments that allow you to take an exposure to a specific type of risk, or
simply to invest your money! Financial instruments are bought and sold by all the financial institution with
different goals (to get a fixed return, to speculate, to provide short term and long term funding, to achieve a
specific rate of return, to fund themselves, to buy or sell for a client…) and in different ways. The most
common are:
 Shares Bonds Derivatives FX (currencies)
 Mutual funds Deposits Real Estate Investment Trust (REITs)
Financial markets are the places where Financial Instruments are bought and sold by Financial Institutions (or
through Financial Institutions). You can find two type of market:
 Regulated markets, like NYSE in New York or Borsa Italiana in Milan
 Over The Counter Markets (OTC), that are not regulated markets where most of the instruments trade.
In OTC markets trade instruments like corporate bonds, FX currencies, derivtives…
Role of Financial Management:
The financial management is generally concerned with procurement, allocation and control of financial
resources of a concern. The objectives can be-
 To ensure regular and adequate supply of funds to the concern.
 To ensure adequate returns to the shareholders
 To ensure optimum funds utilization.
 To ensure safety on investment
 To plan a sound capital structure-

Flow of Funds (FOF)through the organization:


-Order in which revenue generated by an organization is allocated or channeled through its various
agencies, departments, or units.

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