Finance is about the EFFICIENT use of Money
- For economies
- For firms
- For individuals
- Finance is a subset of economics, applying economic tools to the financial information.
- Primary function of Accounting is record keeping.
- Finance = Analysis + Decision Making (Not Record Keeping)
- Finance is Forward Looking
Three big areas of finance
1. Financial Markets
- Focuses on how financial markets and institutions affect the economy.
2. Business or Corporate Finance
- Focuses on the tools businesses should use to make good decisions.
- Focuses on the financial decisions that most directly affect individuals.
Major Areas of Business Finance
1. Financial Analysis and Planning
- Focuses on figuring out what is happening in the firm and forecasting the future
2. Working Capital Management
- Focuses on management of short-term assets and liabilities.
3. Capital Budgeting
- Focuses on how the firm decides what assets to buy (what investments to make).
3. Capital Structure
- Focuses on how the firm finances its operations