BUSINESS FINANCE

ACCOUNTANCY, BUSINESS AND MANAGEMENT - 12

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FUNDAMENTAL CONCEPTS AND TOOLS OF
BUSINESS FINANCE
Categories of Finance- it is divided into 2 categories according to the type
of entity or organization served.
1. Public Finance - area of general finance that deals with the revenue and
expenditure patterns of the government and their various effects on the
economy.
2. Private finance - deals with area of general not classified in public
finance. It is subdivided into the following:
a) Personal finance
b) Finance of non-profit organization
c) Business finance
Business finance provision of money for commercial use. It may be
concerned with three aspects:

1. Small business finance

2. Corporate finance
3. Multinational business finance
GOALS OF BUSINESS FINANCE
What Is a Financial Goal?
A financial goal is a target to aim for when managing your money.
It can involve saving, spending, earning or even investing.

Creating a list of financial goals is vital to creating a budget. When

you have a clear picture of what you’re aiming for, working
towards your target is easy. That means that your goals should be
measurable, specific and time oriented.
GOALS OF BUSINESS FINANCE
Types of Financial Goals

There are several types of financial goals:

Short-term goals
Mid-term goals
Long-term goals

Short term financial goals

These are smaller financial targets that can be reached within a year. This
includes things like a new television, computer, or family vacation.
GOALS OF BUSINESS FINANCE
Mid-term financial goals
Typically, midterm goals take about five years to achieve. A little more
expensive than an everyday goal, they are still achievable with discipline and
hard work. Paying off a credit card balance, a loan or saving for a down
payment on a car are all mid-term goals.

Long-term financial goals

This type of goal usually takes much more than 5 years to achieve. Some
examples of long term goals are saving for a college education or a new home.
GOALS OF BUSINESS FINANCE
1. Maximizing the profit - means realizing the highest possible
money income.
2. Maximizing profitability - it is to obtain the highest rate of
return on its investment.
3. Maximizing profit subject to cash constraint - maximize
the profits and at the same time maintaining a cash balance that can
take care of cash requirements anytime.
4. Maximizing net present worth - to maximize the current value of
the company to its owners.
5. Seeking an optimum position along a risk - return Frontier -a
firm can set a goal in achieving the best possible combination of risk and
return

Return of investment - net income generated by the use of investment

Rate of return - when the return of investment is express in percentage
Risk-potential incurrence of loss of money or its equivalent.
Financial Statements - are present financial information to various interested
parties. Financial managers are concerned about getting relevant information
through the use of financial statements.
The two important financial statements from the point of view of business
managers are:
1) Balance Sheet
2) Income Statement

Balance Sheet - statement produced periodically, normally at the end of a

financial year, showing an organizations assets, liabilities and interests of the
owners.
Income statement- represents the revenues realized from the sale of goods and
services produced by the company, as well as the cost and expenses incurred in
connection with the realization of revenues.
Groups interested in the FINANCIAL STANDING of the firm.

1. Owners - concerned with the return of their investment

2. The management- concerned with effective planning and control of the
activities of the firm.
3. Creditors - they need to know if the firm is credit worthy.
4. The government - for tax and regulatory purposes.
5. Prospective Investors - concerned with the protection of their investment and
earning s they will make.

ANNUAL REPORT - contains Balance sheet, Income statement, auditor's report

and chairman's report sent out annually by the company to its stockholders or
members.