Corporate Finance
Chapter one
first lecture
1-Meaning of Finance (Definition of Finance).
2-Financial Management and Corporate Finance
3- The organizational level of the finance function
4-Objectives of Financial Management.
Definition of Finance
-Finance can be defined as the science and art of
managing money/ allocating funds/ capital over
time.
- It is the study of how individuals and
businesses evaluate investments and how to raise
funds to finance them.
Definition of Finance
- Finance, also, is related to how individuals and
businesses make choices between current
spending or receiving money at the present time
versus sometime in the future.
Definition of Finance
Finance function can exercise at:
1-the individual level
2-and at a business level
1-the individual level
finance is concerned with individual activities
or decision-making process related to how an
individual manages his/her money. That is, how
much of earnings / income will spend now
(current spending), how much funds will be put
aside (saved, that is; postponed spending), and
how such savings will be invested (in the form of
financial or / and real investments (assets).
2- business level
finance is related to activities or decision-making process
involving mainly:
- planning and managing long term investment(which called
capital budgeting)
- managing long term sources of funds (that is the mix between
debt and equity) a firm utilized to finance its operations (which
called
capital structure),
- managing the firm’s working capital in the form of short-term
investment (that is, current assets) and short-term sources of
funds (that is, current liabilities) and safeguarding that the firm
in good liquidity position to maintain its day-to-day operations.
Definition of Finance
- Finance is concerned with the decision-making
process, financial institutions financial markets, and
financial instruments involved in the transfer of savings
from savers (saving or surplus sectors: different economic
sectors of the economy such as; individuals, businesses,
and government) with excess cash to borrowers (deficit
sectors: different economic sectors of the economy such
as; individuals, businesses, and government) who have
less cash than they need so, they have financial
requirements or needs). Such flow of funds is the main
responsibility of the financial system .
The organizational level of the
finance function
The organizational level of the finance function
and its importance depends on the size of the
firm in addition to other factors.
- In small firms/companies:
the finance function, may performed by the
company owner, or its president or the
accounting department.
- In large firms/ companies :
the finance function typically develops into a separate
department or sector and headed by Vice President of
Finance or any other title like Chief Financial officer
(CFO) who reports directly to the president of the firm
(CEO ) .
In such case, the Chief Financial officer (CFO) is
managing all the firm's financial activities through
two main offices of the firm:
A. Treasurer: which is responsible for the financial
affairs/activities such as cash management, credit
management, capital expenditure, raising funds,
financial planning, management of foreign
currencies.
B. Controller: which is responsible for the accounting
affairs/activities such as taxes, preparing financial
statements, cost control…
The general organization of the corporation can be represented in the following
figure:
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