This document provides an overview of finance, economics, and financial statements presented by Finatix, a finance club. It discusses key accounting concepts and principles, the four main financial statements including income statement, balance sheet, cash flow statement, and financial ratios. It also covers microeconomic and macroeconomic topics like supply and demand curves, aggregate demand and supply, and fiscal and monetary policies. Finatix discusses various financial management concepts including sources of funds, types of capital, and repo and reverse repo rates.

1. BASICS ON FINANCE
AND ECONOMICS
A webinar by
FINATIX, The Finance Club of

2. Discussion Topics
FINANCE
 Accounting
Principles and
Accounting
Concepts
 Accounting Policies
 Financial
Statements
 Financial Ratios
ECONOMICS
 Microeconomics
 Basics of Supply
and Demand
Curve
 Macroeconomics
 Aggregate
demand and
supply
 Fiscal policy and
monetary policy
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3. Accounting Concepts
 There are few basic rules for recording any accounting
transactions
a) Dual Aspect Concept - It must have two sides
b) Money Measurement Concept - It has to be in terms of
money
c) Periodicity Concept - It falls between a specified period
d) Entity Concept – It is specific to a particular entity
e) Conservatism Concept - Future losses to be recorded but
not future gains
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4. Accounting Concepts
f) Matching Concept - Expenses related to Incomes only can be
recorded
g) Historical Cost Concept - Assets to be recorded at purchase
price
h) Realisation Concept - Profits to be recorded only when sale has
taken place
i) Materiality Concept - It needs to be material for decision
making
j) Capitalisaiton Concept - Costs related to capital assets before
put to use
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5. Financial Statements –
Profit and Loss Account
 It reports a company's revenues, expenses, and most of
the gains and losses which occurred during the period of
time specified
 Generally prepared for one year period
 The bottom line of this financial statement appears
as net income, which is the net amount of the revenues,
expenses, gains, and losses being reported
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7. Financial Statements –
Balance Sheet
 It represents a company's financial position at the end of a
specified date
Assets:
 Assets are the things that a business owns or sums that are
owed to the business at any one moment in time
 The business obtains the finance for these assets from two
main source:
 Internally (inside the business) from capital raised from
the business owners
 Externally - for example, in the form of loans, and other
forms of finance which needs to be repaid
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8. Financial Statements –
Balance Sheet
Liabilities:
 When you set up a business, the business becomes a legal body in
its own right
 Internal finance (shareholders' funds) is owed to shareholders
 External finance is owed to people outside the business -
liabilities
 The Balance Sheet will therefore balance since in simple terms
this shows that the value of a businesses assets is financed by the
two groups –
 Internal (owner's capital),
 External (liabilities).
 A balance sheet typically appears in a vertical format
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10. Financial Statements –
Cash Flow Statement
 A financial statement that shows how changes in balance
sheet accounts and income affect cash and cash equivalents,
and breaks the analysis down to operating, investing and
financing activities
 Management decisions for the next years can be based on the
cash inflows or cash outflows from each individual activities
 Also it portrays the usage or generation of cash from which of
the following operating, investing or financing activities
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12. Financial StatementsRatios
 Liquidity Ratio
 Profitability Ratio
 Activity Ratio
 Solvency Ratio
 Leveraging Ratio
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13. Financial Management
The theory of Financial Management is the theory of
financial decision making by business firms
It can be described as the study of decisions that
every firm has to make related to financial matters
It is the managerial activity which is concerned with the
planning and controlling of the firm’s financial resources
It can be viewed as proper management of flows of
funds in a firm
“Financial Management is concerned with the managerial decisions
that result in the acquisition and financing of short term and long-term
credits for the firm”
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14. Financial Management –
Procurement of Funds
Sources
of
Funds
Equity
Debt
Hire
Purchas
e
Angel
Financin
g
Venture
Capital
Comme
rcial
Banks
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15. Financial Management –
Types of Capital
Equity Share Capital
Reserves and Surplus
Preference Share
Capital
LongTerm Loan Funds
Term Loans
Debentures
ShortTerm Loan Funds
Bank Overdraft
Credit Limit
Types of
Capital
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16. Economics and its Scope
• Economics
It is the social science that studies how individuals, groups, and
organizations (called economic actors, players, or agents),
manage scarce resources, which have alternative uses, to
achieve desirable ends.
• Microeconomics: examines the functioning of individual
industries and the behavior of individual decision- making
units—that is, business firms and households.
• Macroeconomics: that examines the economic behavior of
aggregates— income, output, employment, and so on—on a
national scale
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17. Prices and Markets
• Microeconomicsdescribes how prices are determined.
• In a centrally planned economy, prices are set by the
government.
• In a market economy, prices are determined by the
interactions of consumers, workers, and firms.These
interactions occur in markets—collections of buyers and
sellers that together determine the price of a good
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18. Market
• Collection of buyers and sellers that, through their actual
or potential interactions, determine the price of a product
or set of products.
• Market Definition: Determination of the buyers, sellers,
and range of products that should be included in a
particular market.
• Extent of a marketBoundaries of a market, both
geographical and in terms of range of products produced
and sold within it.
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19. Types of Markets
• Monopoly and monopolistic competition
• Monopsony
• Bilateral Monopoly
• Duopoly
• Oligopoly
• Cartel
• Oligopsony
• Perfectly competitive market
• Noncompetitive market
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20. Classification of
goods
• Complementary goods: Complementary goods are one
that are consumed together, e.g., hamburgers and French
fries or IPods and IPod docking stations.
• Substitute goods are alternatives to one another, e.g., a
bicycle is a substitute for a car in transportation.
• A normal good is one the consumption of which increases as
income increases.
• An inferior good is one the consumption of which
decreases as income increases. Example cheap wine.
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21. Basics
of
Demand and Supply
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22. The Demand
Curve
• Relationship between the quantity of a good that
consumers are willing to buy and the price of the good.
• We can write this relationship between quantity
demanded and price as an equation:
• QD = QD(P)
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23. The Demand Curve
• The demand curve is
downward sloping, holding
other things equal, consumers
will want to purchase more of
a good as its price goes down.
• The quantity demanded may
also depend on other
variables, such as income, the
weather, and the prices of
other goods.
• A higher income level shifts
the demand curve to the right
ȋfrom D to DǯȌ.
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24. The Supply Curve
• Relationship between the quantity of a good that
producers are willing to sell and the price of the good.
• We can write this relationship as an equation:
• QS = QS(P)
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25. The Supply Curve
• The supply curve is upward
sloping:The higher the
price, the more firms are
able and willing to produce
and sell.
• If production costs fall,
firms can produce the same
quantity at a lower price or
a larger quantity at the
same price.The supply
curve then shifts to the
right (from S to S’).
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26. The Market Mechanism
• The market clears at price
P0 and quantity Q0.
• At the higher price P1, a
surplus develops, so price
falls.
• At the lower price P2,
there is a shortage, so
price is bid up.
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27. Elasticities of Demand and
Supply
• Price elasticity of Demand :
Price elasticity of demand measures the responsiveness of
demand to changes in price for a particular good.
• Price Elasticity of Demand = % Change in Quantity
Demanded/ % Change in Price
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28. Elasticities of Demand and
Supply
Other Demand Elasticities
●income elasticity of demand -Percentage change in the quantity
demanded resulting from a 1-percent increase in income.
●cross-price elasticity of demand: Percentage change in the
quantity demanded of one good resulting from a 1-percent
increase in the price of another.
Elasticities of Supply
●price elasticity of supply Percentage change in quantity
supplied resulting from a 1-percent increase in price
.
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29. Some other concepts
• Opportunity cost is the best alternative that we forgo, or give
up, when we make a choice or a decision.
• Opportunity costs arise because time and resources are
scarce. Nearly all decisions involve trade-offs.
• Sunk costs are costs that cannot be avoided, regardless of
what is done in the future, because they have already been
incurred.
• Marginalism : In weighing the costs and benefits of a
decision, it is important to weigh only the costs and benefits
that arise from the decision.
• For example, when deciding whether to produce additional
output, a firm considers only the additional (or marginal
cost), not the sunk cost.
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30. Macroeconomics
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31. Aggregate Demand and
Supply
• Aggregate Demand:
• It is made up of four basic components: AD = C + I + G + NX
C -Consumption demand I-Investment Demand
G -Government Expenditure NX - Net Exports
• Aggregate Supply: In economics, aggregate supply is the
total supply of goods and services that firms in a national
economy plan on selling during a specific time period. It is
the total amount of goods and services that firms are willing
to sell at a given price level in an economy
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32. • The Government can intervene in the market
through two
types of policies:
• FISCAL POLICY
• MONETARY POLICY
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33. Fiscal Policy
• Fiscal Policy is the use of government revenue(taxes) and
expenditure to influence the economy.
• An increase or decrease in government expenditure has a
direct impact on the AD as it leads to increased or
decreased demand for goods and services in the economy.
• An increase or decrease in the taxes leads to a change in
the disposable income of the people leading to a
corresponding change in the expenditure of the people
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34. Monetary Policy
• Monetary policy is the process by which the monetary
authority of a country controls the supply of money,
often targeting a rate of interest for the purpose of
promoting economic growth and stability.
• The central bank influences interest rates by
expanding or contracting the monetary base, which
consists of currency in circulation and banks' reserves
on deposit at he central bank.
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35. • Open Market Operations: An open market operation (also
known as OMO) is an activity by a central bank to buy or
sell government bonds on the open market. A central bank
uses them as the primary means of implementing monetary
policy.
• Reserve Requirements:The banks need to hold a fraction of
all deposits that they receive with the central bank and with
themselves.This is called the required reserve ratio of banks.
• The required reserve ratio is sometimes used as a tool in
monetary policy, influencing the country's borrowing
and interest rates by changing the amount of funds available
for banks to make loans with.
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36. • There are two basic components of required reserve ratio that
might be changed to alter the amount of loanable funds available
with the banks.These are:
• Statutory Liquidity Ratio(SLR): SLR specifies the fraction of
deposits that the banks need to hold with themselves in order to
maintain a certain minimum level of liquidity.This is determined by
the central bank of the country.
• Cash Reserve Ratio(CRR): CRR is a specified minimum fraction of
the total deposits of customers, which commercial banks have to
hold as reserves either in cash or as deposits with the central bank.
CRR is set according to the guidelines of the central bank of a
country.
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37. Repo and Reverse Repo
• Repo Rate:The repo or repurchase rate is the interest
charged by the RBI to banks when they approach it for
short term loans.
• Reverse Repo: Reverse Repo rate is the rate at which the
RBI borrows money from commercial banks. Banks are
always happy to lend money to the RBI since their
money are in safe hands with a good interest.
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38. THANK YOU
FINATIX