Areas of Finance

Finance
´In simple terms, finance is concerned with
decisions about money, or more appropriately, cash
flows. Finance decisions deal with how money is
raised and used by businesses, governments, and
individuals.
To make sound financial decisions you must understand three
general, yet reasonable, concepts: Everything else being
equal:

1.More value is preferred to less

2.The sooner cash is received, the more valuable it is
3.Less risky assets are more valuable than (preferred to)
riskier assets.
GENERAL AREAS OF
FINANCE

Financial
Investments Financial
Markets and
Services
Institutions
 Financial Markets and Institutions

The success of these organizations requires an understanding of

factors that cause interest rates and other returns in the financial
markets to rise and fall, regulations that affect such institutions, and
various types of financial instruments, and various types of financial
instruments, such as mortgages, automobile loans, and certificates
of deposit, that financial institutions offer.
Investments
This area of finance focuses on the decisions made by businesses and
individuals as they choose securities for their investment portfolios.

The major functions in the investments area are

(a) determining the value, risks, and returns associated with such financial
assets as stocks and bonds and

(b) determining the optimal mix of securities that should be held in a

portfolio of investments, such as a retirement fund.
Financial Services
Financial services refer to functions provided by organizations that deal
with the management of money. Persons who work in these organizations,
which include banks, insurance companies, brokerage firms, and similar
companies, provide services that help individuals and companies
determine how to invest money to achieve such goals as home purchase,
retirement, financial stability and sustainability, budgeting, and so forth.
 Managerial Business
Finance
Managerial finance deals with
decisions that all firms make
concerning their cash flows, Managerial finance is important in all
including both inflows and types of businesses, whether they are
outflows. public or private, and whether they
deal with financial services or the
manufacture of products.
Roles of Financial
Managers
Allocation or Utilization of
Funds
The financial manager decides as to
where to get financial resources like:

• Cash
• Inventories Equipment
• Other Assets needed in
operations
Management of Funds
The person in charge of the finance function is
called the director of finance, VP – Finance, or
f i n a n c e m a n a g e r.

He is responsible for the allocation of the

financial resources of a c o m p a n y, the
acquisition of additional funds needed, and the
utilization of these financial resources to attain
organizational objectives.
The finance manager or comptroller
supervises :
T h e c h i e f a c c o u n t a n t , t h e p u r c h a s i n g m a n a g e r,
the i n v e s t m e n t m a n a g e r, t h e b u d g e t a n d
p l a n n i n g m a n a g e r, t h e t r e a s u r y d e p a r t m e n t , a n d
the risk management and insurance department.
Goals of the
Acquisition of funds with the least cost from
1
the right sources at the right time;

2 Effective cash management;

Financial 3 Effective working capital management;

Manager 4

5
Effective inventory management;

Effective investment decisions;

6 Effective investment decisions;

7 Effective investment decisions;

Inventories need to be managed
effectively
Overstocking is undesirable; it ties up capital.
Understocking, likewise
Determining where to invest excess
funds to create additional income is
making an investment decision.
Too much cash lying in the bank or
checking accounts that do not ears
interest are not advisable. Any excess
cash needs to be invested to earn
income, either in the form of interest or
dividends.
Investing in the right assets is a must
for successful management of a firm.
Engaging in new projects and buying
new assets are investment activities.
Proper asset allocation is important.
Selecting the right machinery and
equipment needed by a company in its
operation is important to attain its
production goal that creates sales.
Risk management is a task is important
to the firm to weigh risks associated
with certain business decisions. Buying
stocks or investing in something needs
risk analysis and assessment.