Chapter 1: What is Finance? Objective To Define Finance The Value of Finance Introduction to the Players Chapter Contents • Defining Finance • The Goal of management • Why Study Finance • Market Discipline-Takeovers • Household Finance • Financial Decisions Firms • Role of the Financial Specialists in a Corporation • Forms of Business Organization • Separation of Ownership and Management Important Terms • Assets • Personal investing & Asset allocation • Liability, Debt • Net Worth = Assets - Liabilities • Exogenous and endogenous elements (1.9) The Roles of Corporate Financial Specialists • Financial executive a person with authority in the following functions: B o a r d o f D ir e c t o r s C h ie f E x e c u t iv e O ffic e r V P O p e r a t io n s C h ie f F in a n c ia l O ffic e r V P M a r k e t in g T re a s u re r V P F in a n c ia l P la n n in g C o m p t r o le r Financial Functions in a Corporation: • Planning • Provision of Capital • Administration of Funds • Accounting and Control • Protection of Assets • Tax Administration • Investor Relations • Evaluation and Consulting • Management Information Systems Planning – long and short-term financial planning – budgeting for capital expenditures – budgeting for operations – sales forecasting – performance evaluation – pricing policies – economic appraisals – analysis of acquisitions and divestments Accounting and Control – establishment of accounting policies – development & reporting of accounting data – cost standards – internal auditing – systems and procedures (accounting) – government reporting – reporting & interpreting operations results – comparing performance with operating plans and standards