1. 1 Chapter 1: What is Finance? Copyright © Prentice Hall Inc. 2000. Author: Nick Bagley, bdellaSoft, Inc. Objective To Define Finance The Value of Finance Introduction to the Players

2. 2 Chapter 1 Contents 1 Defining Finance1 Defining Finance 2 Why Study Finance2 Why Study Finance 3 Household Finance3 Household Finance 4 Financial Decisions--Firms4 Financial Decisions--Firms 5 Forms of Business Organization5 Forms of Business Organization 6 Separation of Ownership and Management6 Separation of Ownership and Management 7 The Goal of management 8 Market Discipline-- Takeovers 9 Role of the Financial Specialists in a Corporation

3. 3 Important Terms Assets Personal investing & Asset allocation Liability, Debt Net Worth = Assets - Liabilities Exogenous and endogenous elements

4. 4 (1.9) The Roles of Corporate Financial Specialists Financial executive--a person with authority in the following functions:

5. 5 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

6. 6 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

7. 7 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