FINANCE FINANCIAL MANAGEMENT

- Art and science of managing money
- Term for matters regarding the management, creation, and study of
money and investments
- Categories of finance: public and private
Public Finance
- government borrows
- government cost of capital paid (future taxpayers bear risk)
Private Finance
- borrow from banks, bond and equity markets
- private capital costs more than public capital
1. personal finance – managing one’s own personal affairs
2. finance of non-profit organization – managing resources of provate
undertakings such as charity, religion, and private educational
institutions
3. Business finance – provision of money for commercial use
Areas of Finance (Three Interrelated Areas)
a. Financial markets – money market, capital market
b. Lenders/net savers - households, firms, government, non-residents
c. Borrowers/net spenders - households, firms, government, non-
residents
d. Financial Intermediaries – credit institutions, other monetary,
financial institutions, other
It is an area primarily concerned with financial decision making
within the business entity
It includes selection and financing of long-term projects, decisions
concerning the day-to-day operation of the business, how much and
when dividends should be declared
It involves financial planning, asset management and fund raising
decisions to enhance the value of the business
GOALS OF THE FIRM
1. Stockholder’s Wealth Maximization
maximizing the selling price (market value) of the company’s share
of stock in the capital market.
the risk and return concept
It considers the following: (1) wealth for the long term; (2) risk or
uncertainty; (3) the timing of stockholders’ return
PROFIT MAXIMIZATION

Financial Institutions
- Companies that provide a broad range of business and services
including banking, insurance, and investment management.

INVESTMENTS
- Monetary assets purchased with the idea that the asset will provide
income in the future or will later be sold at a higher price for a profit
- Focuses on the decisions made by both individuals and institutional
investors as they choose securities for their investment portfolios