Introduction To Financial Management
Define the terms finance and financial management, and identify the major sub-areas of finance.
Finance is the study of applying specific value to things individuals own to include services used and decisions determined [Finance by Cornett, M. M., Adair, T. A., & Nofsinger J. (2014). M: Finance (2nd ed.)]. In simple words, finance is how much value is attributable to goods and services and the basis of such attribution.
Financial management may be defined as the management of the finances of a business or an organization in order to achieve the financial objectives. It includes creation, effective utilization of funds to ensure the smooth functioning of the business. It encompasses planning, administration and controlling.
The various sub areas of finance are:
1. Investments – deals with deciding on what kinds of securities/bonds the company can buy.
2. Financial management – management of finances to ensure that the financial objectives are reached
3. Financial institutions and markets – these two sub areas facilitate the raising of capital funds by the company.
“What are the three basic forms of business ownership? What are the advantages and disadvantages to each” (Cornett, Adair, &Nofsinger, 2014, p. 21)?
The three basic forms of business ownership are sole proprietorship, partnership and corporation.
A sole proprietorship is where the business is run by a single person. The advantages of this form of ownership are as follows:
• This is the easiest form of business to start
• This is affected least by regulations
• There is no question of share of profits. The owner gets to retain the full share
• The profits are taxed only once as business income.
The disadvantages of this form of ownership is as follows:
• The life of the company is limited to the life of the owner. There will be no continuity once the owner dies.
• The capital invested in the business is limited to the resources available with the owner. The scope of raising external
Finance is the study of applying specific value to things individuals own to include services used and decisions determined [Finance by Cornett, M. M., Adair, T. A., & Nofsinger J. (2014). M: Finance (2nd ed.)]. In simple words, finance is how much value is attributable to goods and services and the basis of such attribution.
Financial management may be defined as the management of the finances of a business or an organization in order to achieve the financial objectives. It includes creation, effective utilization of funds to ensure the smooth functioning of the business. It encompasses planning, administration and controlling.
The various sub areas of finance are:
1. Investments – deals with deciding on what kinds of securities/bonds the company can buy.
2. Financial management – management of finances to ensure that the financial objectives are reached
3. Financial institutions and markets – these two sub areas facilitate the raising of capital funds by the company.
“What are the three basic forms of business ownership? What are the advantages and disadvantages to each” (Cornett, Adair, &Nofsinger, 2014, p. 21)?
The three basic forms of business ownership are sole proprietorship, partnership and corporation.
A sole proprietorship is where the business is run by a single person. The advantages of this form of ownership are as follows:
• This is the easiest form of business to start
• This is affected least by regulations
• There is no question of share of profits. The owner gets to retain the full share
• The profits are taxed only once as business income.
The disadvantages of this form of ownership is as follows:
• The life of the company is limited to the life of the owner. There will be no continuity once the owner dies.
• The capital invested in the business is limited to the resources available with the owner. The scope of raising external