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1. Thursday, July 26, 2018 Compiled by IQRA 1

2. FINANCE FOR COMPUTER
SCINENCE
An Introduction to Financial Management

3. Semester 4
NAME Iqra
ID# 48

4. What is Finance?
• Finance
• Meaning
• History
• Definition
• Sources of Finance
• Financial Management
• Principal of Finance
• Form of business
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5. Meaning of finance
Finance is a board term that describes two related activities the
study of how money is managed and the actual process of
acquiring needed funds.
Because individual, business and government entities all need
funding to operate.
The field is often separated into three sub categories,
• Personal finance,
• Corporate finance
• Public finance
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6. History of Finance
If we trace the origin of finance,
there is advance to prove that it
is as old as human life on earth.
The word was originally a French
word. In the 18th century, it was
by English speaking
communication to men “the
management of money.”
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7. Definition of finance
• FINANCE --- THIS IS THE MONEY
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8. Business finance
• Guttmann and Dougal:- “because finance can be broadly
defined as the activity concerned with the planning, raising,
controlling and funds used in the business”
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9. Why do business need finance?
Business
need
money
Every bill
payments
Replace
machinery/
equipment
Internal
growth
For
starting
up
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10. Sources of Finance
Internal sources of finance
Finance which is raised internally ,it dose not
increase the debts of the business.
Example:
• Retained profit
• Personal savings
• Sales of unwanted assets
External sources of finance
Finance provide by people or institutions outside
the business, creates a debt that will require
payment.
Example:
• Loans
• Shares
• Debentures
Sources of finance
can be either
Internal External
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11. Financial management
• Maintenance and creation of economic value
• Deal with all kinds of financial decisions ,such as when to invest
new assets, when to borrow…
• Definition
• The planning, direction, monitoring and controlling of the
monetary resources of an organization.
• What is the goal of the firm?
• The goal of the firm is maximization of shareholder wealth
• Maximization of the price of the existing common stock.
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12. Foundational principle of finance
Principle 1:Cash flow is what matters
• Accounting profile are not equal to cash flows.
• Cash flows drives the value of a business.
Principle 2: Money has a time value
• A dollar received today is worth more
than a dollar received in the future.
• Since we can earn interest on money
• received today, Money earlier rather than later. .
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13. Principle continue…
Principle 3: Risk requires a reward
• We won’t take on additional risk unless we expect to be
compensated with additional reward or return.
Principle 4: Market price are generally right
In an efficient market, the prices of all traded assets (such as stocks
bonds) is fully reflect all available information.
Principle 5: Conflicts of interest cause agency problems
• Agency problem conflicts of interest between principal (owners)
and agents (managers) due to the separation of management and
the ownership.
• Agency conflict is reduced through monitoring
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14. The legal form of business organization
Sole
proprietorship
corporationpartnership
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15. Sole proprietorship
A business owned by a single individual.
Advantages:
• Easy information
• No corporate tax
• Complete control and decision making power
• Retention of all profits and assets
• Disadvantages:
• Financing limitations
• Unlimited liability (incur all losses and debts)
• Lacks continuity when proprietor dies
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16. Partnership
Co-owned by the 2 or more individuals agreed to form a business in order to get profit based on agreement.
There are two types:
• General partnership
All partners have unlimited liability fully liable fro the indebtedness incurred by the partnership.
• Limited partnership
Some partners can have unlimited liability to cash/property they have invested in the firm.
Limited partners (investors) cannot participate in the business management and their names appear in the name
of the firms.
Advantages:
• More available brain power and management skill
• Easy to form
• Able to raise capital
Disadvantages:
• Unlimited liability
• Difficult to transfer ownership
• Partnership is dissolved by the death or withdraw of partners
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17. Corporation
oLegally functions separate and apart from its owners
oCo. can sue, be sued, purchase, sell and own property
oLife of company dose not depend on the status of its owners
Advantages:
• Limited liability for shareholders
• Ownership can be easily transferred
• Unlimited life
• Easy to raise capital
Disadvantages:
• No secrecy of information
• May be delays in decision making … Double taxation.
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