Fundamentals of Finance and Financial Management

 Finance – it is the function or area which is responsible for managing the aspect of the operations that deals
with money matters.
 Financial Management – has broader in meaning as it covers the planning, organizing, leading, and
controlling of all financial activities of an organization.

Branches of Finance

1. Public Finance – is the field of finance which deals with the collection of taxes and budget allocation for
programs designed to benefit the general public and the production and distribution of public goods.
2. Personal Finance – it encompasses everything that pertains to personal financial planning, including coming
up with a budget that matches one’s short- and long-term needs, creating a savings plan for contingencies,
investing in financial products which are often intended for retirement and investing for the purpose of
maximizing wealth.
3. Corporate Finance – is primarily concerned with the management of all the financial activities of an
enterprise or a business organization. The ultimate goal of a corporate fiancé is to maximize shareholder
value through sound financial planning.

Interrelated Areas of Corporate Finance

1. Financial Markets and Institutions – this area cover banks, insurance companies, finance companies
(nonbank institutions which offer both short-term and long-term loans to individuals and other firms), and
other financial intermediaries. Financial intermediaries are also nonbank financial institutions which offer
specialized financial services to businesses.
2. Investment – this area focuses on investment options and decisions made by both individual and corporate
investors. Some of the considerations made are the risk-return trade-off, the price of financial products
(securities), the financial products to be included in one’s portfolio of investments in order to maximize
return.
3. Financial Services – this area refers to services offered by organizations whose line of business is to help
individuals and other organizations manage money. These organizations include banks, insurance
companies, brokerage firms, and similar companies that provide professional guidance on decisions
pertaining to how money should be managed in order to achieve goals such as purchasing a home, setting
up a retirement fund, investing on new equipment, and maximizing a shareholder’s wealth.

Relationship Between Accounting and Finance

Managerial accounting is a feature of finance which relies heavily on the use of historical financial data but
focuses on decisions that are future-oriented.

Although finance and accounting have been and will always be closely related, they are nevertheless two
distinct disciplines that have different focuses. One of the main features of finance is managerial accounting. It
involves the preparation of reports which are intended to aid internal users in decision-making. Managerial
accounting relies heavily on the use of historic