Helpful for Beginners in Commerce Field

1. PRESENTATION
ON
SOME COMMON FINANCE
TERMINOLOGY
PRESENTED BY –
MS. KOMAL MAHAJAN
ASTT. PROF. IN COMMERCE

2. SOME COMMON FINANCE TERMS
 FINANCE - Finance is a field that deals with the study of
investments. It includes the dynamics of assets and
liabilities over time; under conditions of different degrees of
uncertainty and risk.
 PERSONAL FINANCE - Personal finance is defined as
the management of money and financial decisions for a
person or family including budgeting, investments,
retirement planning etc.
 CORPORATE FINANCE - Corporate finance is the area
of finance dealing with the sources of funding and the
capital structure of corporations, the actions that managers
take to increase the value of the firm to the shareholders,
and the tools and analysis used to allocate financial
resources.

3.  FINANCIAL MANAGEMENT - Financial Management
means planning, organizing, directing and controlling the
financial activities such as procurement and utilization of
funds of the enterprise. It means applying general
management principles to financial resources of the
enterprise.
 FINANCIAL SYSTEM – It includes a complex of
institution and mechanism which affects generation of
savings and their transfer to those who invest.
 FINANCIAL ASSETS/SECURITIES/INSTRUMENTS –
Financial assets are non physical assets such as bank
deposits, bonds and stocks etc. whose values are derived
from a contractual claim of what they represent.

4.  FINANCIAL INTERMEDIARY - A financial intermediary is
typically an institution that facilitates the channeling of
funds between lenders and borrowers indirectly. Examples –
Banks, Insurance Companies, Pension Funds etc.
 FINANCIAL MARKETS – These provide the forum in which
suppliers of funds and demanders of loans/ investments can
transact business directly.
 SHARE CAPITAL - Share capital denotes the amount of
capital raised by the issue of shares, by a company. It is a
long-term source of finance. In return for the investment by
shareholders, they gain a share of the ownership of the
company.
 SHARE - Shares are units of ownership interest in a
corporation that provide for an equal distribution in any
profits, if any are declared, in the form of dividends.

5.  EQUITY SHARES - An equity / ordinary share represents
equity ownership in a company and entitles the owner to a
vote in matters put before shareholders in proportion to
their percentage ownership in the company. Equity
shareholders are entitled to receive dividends, if any, are
available after dividends on preference shares are paid.
 PREFERENCE SHARES - Preference shares are those
shares which carry certain special or priority rights over
Equity shares in payment of dividend and repayment of
capital. They do not carry any voting right.
 STOCK – It is the aggregate of fully paid up shares.
 DEBENTURE – A written acknowledgement of a debt by a
company under its seal, and generally containing a provision
as to payment of interest and repayment of principal.

6.  BONDS – A Bond is typically a loan that is secured by a
specific physical asset.
 TERM/LONG TERM LOANS – These are loans made by a
bank/ financial institution to a business having an initial
maturity of more than 1 year.
 CAPITAL/SECURITIES MARKET – It is a financial
relationship created by a number of institutions and
arrangements that allows suppliers and demanders of long
term funds with maturities exceeding one year to make
transactions.
 MONEY MARKET – It is created by a financial relationship
between suppliers and demanders of short term funds having
maturities of one year or less.

7.  PRIMARY MARKET/ NEW ISSUE MARKET – A Primary
market issues new securities on an exchange for companies,
governments etc. to obtain financing through debt-based or
equity-based securities.
 SECONDARY MARKET/ STOCK EXCHANGES – It is the
market where investors buy and sell securities they already
own.
 INITIAL PUBLIC OFFERINGS (IPO) – It is the first time
that the stock of a company is offered to the public to raise
the capital.
 PROFITABILITY – It refers to company’s ability to earn
profits. It is the measure of amount of profit and another
indicator related to amount of profit.

8.  LIQUIDITY – It refers to company’s ability to clear its
current obligations at any time in near future.
 SOLVENCY – It refers to the structure of company’s funds
and company’s ability to cover current and non current
liabilities.
 CAPITAL STRUCTURE – It is the proportion of debt and
preference and equity shares on a firm’s balance sheet.
 COST OF CAPITAL – It is the minimum required rate of
return to persuade the investor to make a given investment.
 SPECIFIC COST OF CAPITAL – It is the cost of each
component of the capital.
 WEIGHTED COST OF CAPITAL – It is the combined cost of
each component of funds employed.

9.  BOOK VALUE – It refers to the price paid for the asset
shown in the books of accounts.
 MARKET VALUE – It is the current price at which an
asset can be sold in the market.
 SHAREHOLDERS’ WEALTH MAXIMISATION – It is the
ability of a company to increase the market value of its
common stock over time.
 HIRE PURCHASE FINANCING – It is a type of financing
that allows firms or individuals to possess and control
goods during an agreed term, while paying installments
covering depreciation.
 LEASE FINANCING – In this form of financing, a firm
can obtain the use of fixed asset for which it must make a
series of contractual payments.

10.  VENTURE CAPITAL FINANCING – It is a type of financing
that investors provide to startup companies and small
businesses that are believed to have long term growth
potential.
 FACTORING – It is a type of financing where a business
would sell its accounts receivables (invoices) to a third party
called Factor; to meet its short term liquidity needs.