The document provides a comprehensive overview of finance, including its definition, major areas such as money markets, capital markets, and financial management. It covers the different categories of business finance, principles of finance, and the roles and goals of financial managers, while also addressing various business structures like sole proprietorships and corporations. Additionally, it discusses the agency theory and conflicts that may arise between shareholders and management.

1. Introduction Finance

2. What is Finance?
Finance consists of providing and utilizing the money,
capital rights, credit and funds of any kind which
are employed in the operation of an enterprise.
On the other hand finance define as that
administrative area or set of administrative
function in an org. which have to do with the
management of the flow of cash so that the
organization will have the means to carry out its
objective as satisfactory as possible and at the
same time meet its obligation as they become
due.

3. What is Business Finance?
Business finance means finance required for promoting
and running trade, commerce or industrial
undertakings. The saving, spending, borrowing and
investing of funds are included in the meaning of
business finance.
Business finance also means rising, providing and
managing of all money capital or funds of any kind to
be used connection with business.

4. Scope/Major areas of Finance:
Money Market and Capital Market
Investment
Financial Management
Money Market and Capital Market: The market for short-term, highly liquid,
low-risk assets such as Treasury bills and negotiable CDs.
On the other hand, capital market, the market for long-term securities such as
bonds and stocks.

5. Scope/Major areas of Finance….
Investment: The commitment of funds to one or more assets that
will be held over some future time periods.
• Treasury bill: Short term discounted securities issued by Gov’t.
• Negotiable Certificate of Deposit/ Certificate of deposit: An
interest bearing security that certifies that a specified amount
of money placed in a Bank will receive a stated amount of
interest for a stated amount of time.
• Commercial Paper: It refers to unsecured promissory notes by
companies to raise short term financing.
Md. Azizur Rahman

6. Scope/Major areas of Finance….
Relationship among Investment, Money and Capital Market, Financial
Management:-
Investor Firm
Investments Financial
Management
Money and
Capital Market
Profit
Funds
Financial Securities

7. Scope/Major areas of Finance….
Financial Management
• It’s an applied Economics concerned with
the allocation of scarce financial resource
among competing choice.
Financial Management is concerned with
acquisition , financing and management of
assets with some overall goal in mind.
• Financial Management in concerned with
raising, allocating and controlling the firm’s
funds.

8. Categories of Business Finance…..
1.Short term finance: Short term finance is also known as
working capital. It is required to finance the current assets. It is
needed for meeting temporary (day operations) requirements
of the organization.
2.Intermediate term finance: Intermediate term finance is
thought of as that which runs over one year but not over ten
year. It is taken by a businessman when short term finance is
incapable of meeting the requirements and long term loans are
too costly.
3.Long term finance: Long term finance refers to the capital
which is needed for financing fixed assets or long run
investment. Investment in fixed assets such as land, building,
furniture, machinery etc. is financed out of long term capital
funds.

9. Categories of Business Finance…..
A. Govt. Finance: Discuss about equitable distribution of govt. resources,
recruit employees, how to increase national income.
• Internal source: tax, vat, government fund, various autonomous body.
• International Finance
B. Non- government Finance
• Personal Financing: Financing for personal use. Mainly from Bank &
Other source like relatives.
• Business Financing: Financing for commercial organizations. Like
production or service related organization.
• 1. Personal Business Financing, Sole proprietorship, Partnership, Joint
stock company
• 2. Financing of government Organization:
• 3. Financing of autonomous organization:
• Non Business finance: The farm which are not for profit earning.
Charitable organizations.

10. Principles of Finance ……
•Principles of risk return adjustment: For taking
financing decisions, the trade of between risk & return
should be considered.
•Principles of time value of money: The value of
money change with the change in time. So time value
of money should be considered when taking financial
decisions.
•Principles of maximization of wealth: Net cash
inflows of a firm should be used in a firm to increase
assets.

11. Principles of Finance ……
• Principles of liquidity & profitability: For taking financing
decisions trade off between profitability & risk should be
considered carefully as to invest more company might face
liquidity problem & to keep more fund for liquidity purpose
company might have less fund available to invest.
• Principles of perfections: Working capital will be meeting up
from short term source & fixed assets will be meeting up from
long term source.
• Principles of Business Cycle: Economics sometimes face
Recovery, Boom, and Recession & Depression this Business cycle
should be considered carefully.
• Principles of diversification: Portfolio theory.

12. Goal for the Financial Manager
• The goal is to maximize the wealth of the owners.
• For a corporation, this means increasing the stock price to its highest
possible level.
• Maximizing revenues does not necessarily mean maximizing profits.

13. Fundamental Financial Management Decisions…
Financial
Decisions
Investment
Decisions
Financing
Decisions
Dividend
Decisions
Capital
Budgeting
Working
Capital

14. Key Decision of a Financial Manager
i. Investment Decision: Where invest should be made?
ii. Financing Decision: How the required fund would be
collected?
iii. Dividend Decision: How much net profit would be
distributed as dividend among the shareholders &
how much would be retained as retained earnings?

15. The functions of financial Manager
Financial planning
Identification of source
Raising fund
Investment of fund
Protection of fund
Distribution of profit
Management of asset
Cost control
Pricing

16. Goal of a firm
Goal of a firm
Profit maximization Wealth maximization
Profit is the yardstick of efficiency
Profit utilization of resources
Yard stick to evaluate firm’s decision
Social welfare
Clear concept of wealth
It considers time value of money
Focus on market price of share
Risk trade off
Look for growth
Market increase

17. Sole Proprietorship
A business owned and managed by one
individual; the business and the owner are one
and the same in the eyes of the law

18. Sole Proprietorship
Advantages
Simple to create
Least costly form
Profit incentive
Total decision-making
No special legal
restrictions
Easy to discontinue

19. Sole Proprietorship
Disadvantages
Unlimited personal
liability
Limited skills and abilities
Feelings of isolation
Limited access to capital
Lack of continuity of
business

20. Partnership
An association of two
or more people who
co-own a business for
the purpose of making
a profit
A partnership agreement or the Uniform Partnership Act

21. Partnership
Advantages
Easy to establish
Complementary skills
Division of profits
Larger pool of capital
Ability to attract limited
partners
Little governmental regulation
Flexibility
Taxation

22. Partnership
Disadvantages
Unlimited liability of at
least one
Difficulty in disposing of
interest
Lack of continuity
Potential for personality
and authority conflicts
Partners bound by law of
agency

23. Special Partnerships
•Limited partnership-composed of at least one
general partner and at least one limited partner
•Limited liability partnership-a special type of
limited partnership, in which all partners are
limited partners
•Master limited partnership-a partnership whose
shares are traded on stock exchanges, just like
corporations

24. Corporations
A separate legal entity apart from its owners which receives the right
to exist from the state in which in which it is incorporated
Domestic
Foreign
Alien
Publicly held
Closely held

25. Corporations
Certificate of Incorporation
Name
Statement of purpose
Time horizon
Names and addresses of incorporators
Place of business
Capital stock authorization’
Capital required at time of incorporation
Provisions for preemptive rights
Restrictions on transfering shares
Names and addresses of officers
By-laws

26. Corporations
Advantages
Limited liability of
stockholders
Ability to attract capital
Ability to continue
indefinitely
Transferable ownership

27. Corporations
Disadvantages
Cost and time in
incorporating
Double taxation
Potential for diminished
incentives
Legal requirements and
red tape
Potential loss of control

28. •Professional Corporation-lawyers,
accountants, doctors, dentists,
etc.
•Joint Venture-partnership formed
for a specific purpose

29. Agency Theory
A theory concerning the relationship between a
principal and an agent of the principal.
• Owners—managers
• Franchisee—franchisor
• Owners—lenders
• Agency relationships involve a principal (example: owner) and an agent
(example: manager).

30. Agency Cost
An internal cost which develops due to resolve the
agency problem.
1. Managerial Compensation (Incentives)
2. Shareholder Intervention
3. Threat of Takeover.

31. What Is an Agency Problem?
The conflict of goals between shareholders and
management because shareholders wish for
management to run the company in a way that
increases shareholder value, but management may wish
to grow the company in ways that maximize their
personal power and wealth that may not be in the best
interests of shareholders.