What is Finance? • Finance can be defined as the science and art of managing money. • In a business context, finance involves the decisions related.

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Presentation transcript:

What is Finance? • Finance can be defined as the science and art of managing money. • In a business context, finance involves the decisions related to : how firms raise money from investors, how firms invest money how they decide whether to reinvest profits in the business or distribute them back to investors. © 2012 Pearson Prentice Hall. All rights reserved.

Figure 1.3 Financial Activities © 2012 Pearson Prentice Hall. All rights reserved.

Figure 1.1 Corporate Organization © 2012 Pearson Prentice Hall. All rights reserved.

Goal of the firm Maximize the profit The financial manager would take only those action that were expected to make a major contribution to the firm’s overall profit `There are others conditions that affect the financial decision Timing Cash flows Risk

Goal of the firm Maximize shareholder wealth The main goal of the firm is to maximize the wealth of the owner for whom it is being operate , so the financial manager should accept only those actions that are expected to increase share price © 2012 Pearson Prentice Hall. All rights reserved.

Financial institution and markets Financial institutions : Is an intermediary that channels the saving of individuals , businesses and governments into loans or investment Financial markets: Are forums in which suppliers of funds and demands of funds can transact business directly © 2012 Pearson Prentice Hall. All rights reserved.

Payback period Payback period: refers to the amount of time required for the firm to recover its initial investment in a project. © 2012 Pearson Prentice Hall. All rights reserved.