Financial

Terminology
 FINANCE:
• Provision of money at the time when it is required.

• Defined as money or other financial resources of a government,

business, group, or individual.

Two activities:
• the actual process of acquiring needed funds.
• the study of how money is managed
Finance is often separated into three sub-categories:

1. Public Finance

2. Corporate Finance/ Private Finance

3. Personal Finance.
1. PUBLIC FINANCE: Public Finance is the study of the income
and expenditure of the State.

• Deals only with the finances of the Government.

• Study of the collection of funds and their allocation between various
branches of state activities which are regarded as essential duties or
functions of the State.
2. CORPORATE FINANCE: is the division of finance that deals
with how corporations taking financing, capital structure, and
investment decisions.

It is primarily concerned with: maximizing shareholder value

through long-term and short-term financial planning and the
implementation of various strategies.
3. PERSONAL FINANCE: is the application of the principles of
finance to the monetary decisions of an individual or family unit.

• It addresses the ways in which individuals or families obtain, budget,

save and spend monetary resources over time, taking into account
various financial risks and future life events.
o BALANCE SHEET: A balance sheet is a financial statement that
reports a company's assets, liabilities and shareholders' equity at a
specific point in time.

It is an accountant’s snapshot of the firm’s accounting value on a

particular date

The balance sheet has two sides: Assets and Liabilities

The balance sheet states what the firm owns and how it is financed.
Balance Sheet
CAPITAL: represents the amount of investment/ funds obtained from
different financing sources.

Businesses focus on two types of business capital:

Equity Capital
DebtCapital.
1. Equity Capital : Equity capital can come in several forms. Typically
distinctions are made between private equity and public equity.

• Private and public equity will usually be structured in the form of

shares.
• Public equity capital raises occur when a company lists on a public
market exchange and receives equity capital from shareholders.
• Private equity is not raised in the public markets. Private equity
usually comes from select investors or owners
o Shares: Shares are units of equity ownership interest in a corporation
that exist as a financial asset providing for an equal distribution in
any residual profits, if any are declared, in the form of dividends.
• Shareholders may also enjoy capital gains if the value of the
company rises.
• Shares represent equity stock in a firm, with the two main types of
shares being common shares and preferred shares.
• As a result, "shares" and “stock" are commonly used
interchangeably.
1. Common Stock: Common stock is a security that represents
ownership in a corporation.
• Holders of common stock elect the board of directors and vote on
corporate policies.
• This form of equity ownership typically yields higher rates of return
long term.
• However, in the event of liquidation, common shareholders have
rights to a company's assets only after bondholders, preferred
shareholders, and other debt holders are paid in full.
• Common stock is reported in the stockholder's equity section of a
company's balance sheet.
2. Preferences Shares - are shares in a company that are owned by
people who have the right to receive part of the company's profits
before the holders of ordinary shares are paid.
https://www.investopedia.com/video/play/preferred-stock-vs-common-
stock/
2. Debt Capital: A business can acquire capital through the assumption
of debt.

• Debt capital can be obtained through private or government sources.

• Sources of capital can include friends, family, financial institutions,
online lenders, credit card companies, insurance companies, and
federal loan programs.
• Individuals and companies must typically have an active credit
history to obtain debt capital.
• Debt capital requires regular repayment with interest.
 ASSETS
o Assets are the items your company owns that can provide future economic
benefit.

• Assets add value to your company and increase your company's equity

• The more your assets outweigh your liabilities, the stronger the financial
health of your business.

• Example : Cash, Investments, Inventory, Office equipment, Machinery,

Real estate, Company-owned vehicles
o Fixed assets: are long-term assets that a company has purchased and

is using for the production of its goods and services. 

• They are noncurrent assets, meaning the assets have a useful life of

more than one year.

• Example: property, plant, and equipment and are recorded on the

balance sheet.
o CURRENT ASSETS: Current assets are all the assets of a company
that are expected to be sold or used as a result of standard business
operations over the next year. 

• Include: cash, cash equivalents, accounts receivable, stock

inventory, marketable securities, pre-paid liabilities, and other
liquid assets.
o TANGIBLE ASSETS: is anything which can be touched.

Includes: both real property and personal property (or moveable

property), machinery and buildings.

o INTANGIBLE ASSETS: is an asset that lacks physical substance.

• Examples are patents, copyright, franchises, goodwill, trademarks
 LIABILITY

 Liabilities are what you owe other parties.

 while liabilities decrease your company's value and equity.

 But if you find yourself with more liabilities than assets, you may be
on the cusp of going out of business.

 Examples: Bank debt, Mortgage debt, Money owed to suppliers

(accounts payable), Wages owed, Taxes owed
o CURRENT LIABILITY : Current liabilities are a company's short-
term financial obligations that are due within one year or within a
normal operating cycle.

• Examples: accounts payable, short-term debt, dividends, and notes

payable as well as income taxes owed.
o MONEY MARKET: a component of the financial market for assets
involved in short-term borrowing, lending, buying and selling with
original maturities of one year or less.

o CAPITAL MARKET: is the market for long term investments,

which are greater than one year.
o MUTUAL FUND: is a professionally managed investment fund that
pools money from many investors to purchase securities like stocks,
bonds, money market instruments, and other assets.

o RETAINED EARNINGS: are the profits that a company has earned

to date, less any dividends or other distributions paid to investors.

o DIVIDEND: is a payment made by a corporation to its shareholders,

usually as a distribution of profits.
Thank You