corporate finance (5585)-lecture 1

8/2/2019 Corporate Finance (5585)-Lecture 1

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CORPORATE FINANCE(5585)

Lecture 1

(Based on Block 1)

Presenter:ISMATULLAH BUTT

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Corporate Finance (5585)2

Lecture Plan:

Introduction to Finance

Forms of Business Organizations

Role of the Financial Manager

Finance & Accounting

Finance & Economics


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Introduction to Finance

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Finance means the study of money and moneyarrangements through investment and financingdecisions.

Finance activities vary from organization to organization.

Tools and practices used to determine financial needsdepend on the size and depth of operations.

Money management in small organizations focuses oncash management.

Money management in larger organizations deals withcash flow, raising capital for investment & ongoingoperations, risk & reward decisions, insurance/hedgingarrangements and evaluation of capital projects.


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Forms of Business

Organizations4

Sole proprietorship, partnership & Corporations are thethree forms of business organizations from legal angle.

Sole Proprietorship; owned and operated by oneperson-profit/loss goes to owner- easy to start- a few

employees- capital generated by personalsources/borrowing-limited access to resources-unlimitedliability.

Partnership; formed on the basis of partnership deed-two or more partners operate a business together-

general or limited partnerships- debts equally shared ingeneral partnership.

Corporations; a legal entity created by law-managed byhired employees-access to capital resources-limited

liability of share holders.


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Role of the Financial Manager

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Job duties vary from organization to organization.

Main responsibilities include;

i. financial analysis,

ii. financial planning & control,iii. Working capital management,

iv. Financing & investment decisions

Above activities concern every area of organization.

Solid understanding of organization is a must for afinancial manager.


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Finance & Accounting (A)

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The finance and accounting managers work closelytogether.

Same skill set required for both roles yet they differ infocus.

The finance manager interested in cash flows whereasaccounting manager in accrual basis of financialreporting.

The accounting manager needs to report on thecompanys financial performance and prepare financial

statements observing GAAP.

Financial manager obliged to ensure that organization isable to satisfy its financial obligations as they come due.

Accountant more interested in reading the latest financial


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Finance & Accounting (B)

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Both the financial manager and accounting manager useaccounting information as generated by accountingsystem but to different ends.

Example ;information on outstanding obligations to

suppliers.

What invoices have not been paid or recorded at the endof a reporting period to make accruals for their payment(accounting manager).

What invoices have not been paid or recorded at the endof a reporting period to ascertain when the saidinvoices/financial claims are to paid to make cash flowprojections (financial manager).


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Finance & Economics

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Disciplines of Economics and Finance do overlap tosome extent.

Changes in economic environment impact theorganizational ability to raise funds, the cost of funds,

return on investments.

Financial manager, in the role of investor and borrower,needs to understand the current state of the economyboth locally and globally.

The world is a global village and events in foreigncountries can have significant impact on interest rates,exchange rates, and the general level of consumerconfidence.

Financial managers obliged to assess the implications of


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COF Lecture 1-ReviewQuestions

1. How we can define the discipline of Finance?

2. Does the knowledge of finance also help the non-financial managers indischarging their official duties?

3. What can be the minimum and maximum number partners in a partnershiptype of business?

4. What is meant by the term Limited Liability in the context of various

business concerns?

5. A partnership firm ceases upon the death of a partner. Will a company bealso closed if any of its owners expires?

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What are the disadvantages of a sole proprietorship type of business?7. Are the functions of all finance managers the same in organizations of all

sizes?

8. How the roles of an Accounts manager differ from the roles of a Financemanager?

9. What are the main roles of a finance manager?10. How Finance and Economics are related to each other?

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corporate finance (5585)-lecture 1

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