What is Finance? Optimal procurement as well as usage of finance.

What is Finance?
• The art and science of managing money, or management
of money.
• It is the study of value.
• It is the study of how to make good decision that involve
money.
– What assets to buy?
– How to pay for the assets you buy?
Five Fields of Finance
Public Finance
Institutional Finance
Securities and Investment Analysis
International Finance
Why do we need finance?
Why do we need
finance?
• To start a business
• For cash flows
• To finance new assets – machinery,
cars and so on
• For new premises or extending an
existing location
• Buying or combining with another
business
• Other reasons include faster
growth, succession, etc.
Why Study Finance?
 Why Study
Finance?
•Marketing
– Budgets, marketing research, marketing
financial products
•Accounting
– Dual accounting and finance function,
preparation of financial statements
•Management
– Strategic thinking, job performance,
profitability
•Personal finance
– Budgeting, retirement planning, day-to-
day cash flow issues
Finance and Marketing
Finance and Accounting
 Video links on Finance
• Difference between Finance and Economics
– https://www.youtube.com/watch?v=WSZpF3xUcfk
• Why to learn Finance?
– https://www.youtube.com/watch?v=pfG0EwmZLaM
Key issues in Finance
• Where to raise financial resources?
• Where to invest the resources?
• How best to manage the production-
distribution function?
• How much of profit to distribute and how
much to retain?
 1. Management of Funds
Finance 2. Capital markets
3. Investments
Management of Funds
• Acquisition of funds at optimum cost
and its utilization with minimum
financial risk.
• It is concerned with management of
fund.

https://www.youtube.com/watch?v=U4LXk5lbTpI
 Financial Management or
Corporate Finance

• How much and what types of

assets to acquire?
• How to raise the capital needed
to purchase assets?
• How to run the firm so as to
maximize its value?
 Goals of Financial
Management
• Profit maximization (profit
after tax)
• Maximizing Earnings Per Share
• Shareholder’s Wealth
Maximization

https://www.youtube.com/watch?v=75dPbNemehk
Profit Maximisation
• Main aim is earning profit.
• Profit is the parameter of the business
operation.
• Profit reduces risk of the business
concern.
• Profit is the main source of finance.
• It emphasizes short-term
• It ignores time value of money
 Wealth
Maximisation
• This concept is to improve the value or
wealth of the shareholders.
• It considers both time and risk of the
business concern.
• It provides efficient allocation of
resources.
• It ensures the economic interest of the
society.
• It emphasizes long-term.
2. Capital Markets

• The markets where interest rates,

along with stock and bond prices,
are determined.
• The financial institutions that
supply capital to
businesses.
 3. Investments
• Security analysis deals with finding the proper
values of individual securities.
• Portfolio theory deals with the best way to
structure individual/institution portfolios.
• Market analysis deals with the issue of whether
stock and bond markets at any given time are too
high, too low, or just right.
Two pillars of finance
• Risk
• Return
Finance
Functions
 Finance Decisions of the Firm
Financial decision-making involves procurement of funds
and their optimal utilization through:
1. Investment (utilization of fund)
2. Financing decision
3. Dividend (distribution of fund) and
4. Working capital decision
 Key Issues In
Financial Decision-making

Investment • What business to be in?

Decision • What growth rate is appropriate?
• What assets to acquire?
• What mix of debt and equity to be used?
Financing Decision • Can we change value of the firm by changing the capital mix?
• Is there an optimal debt–equity mix?
• How much of the profit should be distributed as dividends and how much should be
ploughed back
Dividend Decision • Can we change value of the firm by changing the amount of dividend?
• What should be the mode of dividend payment
• What level of inventory is ideal?
• What level of credit should be given to the customers?
Working Capital • What level of cash should be maintained?
Decision
• How can the blockage of funds in the current assets be minimized without
compromising with profits?
Organisation of finance function
• Reason for placing the finance
functions in the hands of top
management
– Financial decisions are crucial for the survival
of the firm.
– The financial actions determine solvency of the
firm
– Centralisation of the finance functions can
result in a number of economies to the firm.
 • https://www.cbsesamplepapers.info/cbse/cbse-class-1
2-case-studies-in-business-studies-financial-manageme
nt
• https://help33.com/characteristics-of-partnership-busi
ness/
• https://businessjargons.com/sole-proprietorship.html
Sources • https://www.bnpparibasmf.in/learn-invest/understand
ing-risk-return
• http://www.ptaindia.com/risk-return-relationship-of-in
vestments-mystery-revealed/
• https://www.discovery.co.za/investments/risk-friend
• https://www.caclubindia.com/articles/basics-of-capital
-markets-derivatives-26096.asp
• https://www.youtube.com/watch?v=2Sgp6LVPQXY