BASIC FINANCE: FUNDAMENTAL CONCEPTS AND TOOLS OF BUSINESS FINANCE Finance may be defined as the study of the acquisition

and investment of cash for the purpose of enhancing value and wealth. Categories of Finance 1. Public Finance is that category of general finance, deals with the revenue and expenditure patterns of the government and their various effects on the economy. 2. Private Finance this category deals with the area of general finance not classified under public finance. It is subdivided into the following : 2.1 Personal finance; 2.2 The finance of non-profit organizations; and 2.3 Business finance Definition of Business Finance - Refers to the provision of money for commercial use - It also concerned with the effective use of funds. - Defined as the procurement and administration of funds with the view of achieving the objectives of the business. Business Finance concerned with three aspects : 1. Small business finance; 2. Corporation finance; and 3. Multinational business finance THE GOALS OF BUSINESS FINANCE are variously expressed as follows : 1. 2. 3. 4. 5. Maximizing profit Maximizing profitability; Maximizing profit subject to cash constraint; Maximizing net present worth; and Seeking an optimum position along a risk-return frontier

THE FINANCIAL STATEMENT Financial Statements are those that present financial information to various interested parties. There are various types of financial statements, but only two of them are important from the point of view of business finance. These are : 1) the balance sheet/statement of financial position and 2) the profit and loss statement Balance Sheet -is the statement produced periodically, normally at the end of a financial year, showing an organizations assets, liabilities and the interest of the owners.

Assets shows everything that the firm owns and which has monetary value. Assets are classified into four items and are presented in the balance sheet in order of how quick they can be converted into cash. The classifications are as follows ; 1. Current Assets composed of cash, bank deposits, and other items readily convertible into cash like accounts receivable, stocks and work-in-process , and marketable securities; 2. Trade Investments composed of investments in subsidiary or associated companies 3. Fixed Assets show firms ownership of property like land, buildings, plan and machinery, equipment, vehicles, furniture and fixtures, all valued at cost less depreciation written off; 4. Intangible Assets items present goodwill, patents, copyright which are attributed to the firm Liabilities section of the balance sheet shows the profile of the debts of the company. They classified into several items and are presented first and referred to as current liabilities. Long-term liabilities are those which are payable after one year. The following are common liability terms: 1. Accounts Payable. These are usually composed of debts payable within a few days, weeks or months 2. Loans and Notes Payable . These are debts evidenced by promissory notes and oftentimes backed up collaterals 3. Advances from Customers- Customers sometimes required to make downpayment before orders are processed 4. Accrued Expenses These represent obligations, which have been incurred but not yet paid. 5. Mortgage Payable This comprises borrowings and other sources of funds 6. Bonds Payable- When a large amount of long-term debt is sought by the firm from a large number of creditors, bonds are usually issued. Net Worth- section of the balance sheet shows the interest of the owner or owners in the company. The Income Statement -represents the revenues realized from the sale of commodities and services produced by the company, as well as the costs and expenses incurred in connection with the realization of said revenues. - It is also referred to as profit and loss statement.