What is Finance?

•Finance can be defined as the science and

art of managing money.

•Finance is the science of managing financial

resources in an optimal pattern i.e. the best
use of available financial sources
 What is Finance?
• At the personal level, finance is concerned
with individuals’ decisions about how much of
their earnings they spend, how much they
save, and how they invest their savings
 What is Finance?
• In a business context, finance involves the
same types of decisions: how firms raise
money from investors, how firms invest
money in an attempt to earn a profit, and how
they decide whether to reinvest profits in the
business or distribute them back to investors.
 Major Areas & Concepts of Financial
Management
• Money & Capital markets, which deals with
securities markets & financial institutions.
• Investments, which focuses on the decisions of
both individual and institutional investors as
they choose assets for their investment
portfolios.
• Financial Management, or business finance
which involves the actual management of firms.
Financial Management
 What is Financial Management(FM)?

• Financial management may be defined as

planning, organizing, directing and controlling
the financial activities of an organization.
 Why study FM?
• First of all, financial management is a core life
skill; almost everyone needs to understand
some concepts of finance to manage his/her
business & personal finances.
• It is generally and quite rightfully said, “Money
makes the world go round”. Finance is like a
life-blood for a company. Even the best of the
companies and CEOs go out of the business
because of poor financial management policies
 Why study FM?
• Professionals need to have an understanding
of the financial concepts to understand and
contribute to the overall corporate strategy.
 Career Opportunities in Finance: Financial Services

• Financial Services is the area of finance

concerned with the design and delivery of
advice and financial products to individuals,
businesses, and governments.
• Career opportunities include banking,
personal financial planning, investments, real
estate, and insurance.
 Career Opportunities in Finance: Managerial Finance
 

• Managerial finance is concerned with the

duties of the financial manager working in a
business.
• Financial managers administer the financial
affairs of all types of businesses—private and
public, large and small, profit-seeking and not-
for-profit.
Career Opportunities in Finance: Managerial
Finance
• They perform such varied tasks as developing
a financial plan or budget, extending credit to
customers, evaluating proposed large
expenditures, and raising money to fund the
firm’s operations.
Career Opportunities in Finance: Managerial
Finance
• The recent global financial crisis and
subsequent responses by governmental
regulators, increased global competition, and
rapid technological change also increase the
importance and complexity of the financial
manager’s duties.
Career Opportunities in Finance: Managerial
Finance
• Increasing globalization has increased demand
for financial experts who can manage cash
flows in different currencies and protect
against the risks that naturally arise from
international transactions.
 
 
 Organizational Structure
Business Legal Entities
• Sole Proprietorship :
It is an unincorporated business owned by one
individual. Going into a business as a sole
proprietor is simple – one merely has to begin
business operations. Proprietorship consists of
80% of the total number of businesses
worldwide.
 Sole Proprietorship
• The most common business structure type is a
sole proprietorship. A sole proprietorship is
owned and operated by one person, a 
sole proprietor. A sole proprietorship is a good
option if you are looking to have complete
control of your business.
 Sole Proprietorship
• Sole proprietorships do not produce a
separate business entity. Your business assets
and liabilities are not separate. Sole
proprietors include both their 
business expenses and personal income on
their personal tax return.
 Sole Proprietorship
• Sole proprietors are liable for the business’s
liabilities, debt, and losses. If your business
goes into debt, your personal assets may be at
risk.
 Sole Proprietorship
Advantages:
• It is easily & inexpensively formed.
• It is subject to few government regulations.
• The business pays no corporate income tax;
only personal income tax is paid by the
proprietor.
 Sole Proprietorship
Limitations:
• It is difficult for a proprietorship to obtain large
sums of capital.
• The proprietor has unlimited personal liability for
the business debts, which can result in losses hat
exceed the money invested by him in the business.
• The life of the business organized as proprietorship
is limited to the life of the individual who created
it.
 Partnership
• A partnership exists whenever two or more
persons associate to conduct a non-corporate
business. It could be registered or
unregistered.
 Partnership
Advantages:
• Low cost involved
• Ease of formation.
 Partnership
Limitations:
• Unlimited Liability.
• Limited life of the organization.
• Difficulty of transferring ownership.
• Difficulty of raising large amounts of capital.
 Corporation
• A corporation is a limited company and a
separate legal entity registered by the
government. It is separate & distinct from its
owners & managers. It Can be Private Limited
(Pvt. Ltd.) or Public Limited (which may be
listed on Stock Exchange). The businesses in
the form of corporations control 80% of global
sales of products and services.
 Corporation
Advantages:
Unlimited life:
• A corporation can continue even after the death of its
original owners.
Easy transferability of ownership interest:
• Ownership interests can be divided into shares of
stock, which in turn can be transferred far more easily
than can proprietorship & partnership interests.
 Corporation
Limited Liability:
• The liability of the shareholders is limited up
to the extent of nominal value of shares held
by them. Creditors and banks cannot
confiscate personal properties of director &
shareholders in case of its bankruptcy.
 Corporation
Limitations:

• Double Taxation:
Corporate earnings may be subject to double
taxation – the earnings of the corporation are
taxed at corporate level, and then any
earnings paid out as dividends are taxed again
as income to the stockholders.
 Corporation
• Legal Formalities:
Setting up a corporation, and filing many
official documents, is more complex and time
consuming than for a proprietor ship or a
partnership