1. What is price conflict?

2. Definition
Finance
Financial Management
Business Finance
3. How do we acquire funds? / Sources of fund?
4. How do we utilize the fund?
5. How we take investment decision?
6. Describe cost of capital?
7. Differentiate between Accounting Profit and Financial Profit?
8. Why profit maximization is not the goal of the organization? (Short term, Long
term..)
9. Describe Full theory?
10. Major responsibilities of financial managers?
11.What is risk management? (Broad)
12. Types of risk management?
13. Triple A / AAA
14. Triple P / PPP
15. How do we motivate manager?
16. What is trade bodies?
17. Define financial market?
18. Functions of financial Managers?
P= f(c,m,e)
19. Routine function vs specific function
20. What is the relationship between Risk and Return?
21. 4 types of financial statement?
22. Define leverage?
23. Advantage and disadvantage of leverage?
24. Define financial leverage?

What is price conflict?

The Product features is the same and so is the price. But people sometime choose
the product which has higher Brand status or availability. Pricing things are only
worth what people are willing to pay. Some people are willing to pay hundreds of
dollars for the same thing other people won't spend money on at all. Customer
loyalty will be a big part of while choosing brand. Having customer's coming back
again and again being excited with their purchases will definitely help spread the
word about your luxury products. It also happens that brand loyalty is key to
growing profits of business.

What is Finance?
Finance is the science that describes the management, creation and study of
money, banking, credit, investments, assets and liabilities. Finance consists of
financial systems, which include the public, private and government spaces, and the
study of finance and financial instruments, which can relate to countless assets and
liabilities. Some prefer to divide finance into three distinct categories: public
finance, corporate finance and personal finance. All three of which would contain
many sub-categories.
Public finance: Collection of taxes from those who benefit from the provision of
public goods by the government, and the use of those tax funds toward production
and distribution of the public goods.
Corporate finance: Corporate finance is the area of finance dealing with the sources
of funding and the capital structure of corporations and the actions that managers
take to increase the value of the firm to the shareholders, as well as the tools and
analysis used to allocate financial resources.
Personal finance: Personal finance is defined as the management of money and
financial decisions for a person or family including budgeting, investments,
retirement planning and investments.

What is Finance Management?

Financial Management means planning, organizing, directing and controlling the
financial activities such as procurement and utilization of funds of the enterprise. It
means applying general management principles to financial resources of the
enterprise.

Functions of Financial Management?

Estimation of capital requirements: A finance manager has to make estimation

with regards to capital requirements of the company. This will depend upon
expected costs and profits and future programs and policies of a concern.
Estimations have to be made in an adequate manner which increases earning
capacity of enterprise.
Determination of capital composition: Once the estimation have been made,
the capital structure have to be decided. This involves short- term and long- term
debt equity analysis. This will depend upon the proportion of equity capital a
company is possessing and additional funds which have to be raised from outside
parties.
Choice of sources of funds: For additional funds to be procured, a company has
many choices likea. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds.
Choice of factor will depend on relative merits and demerits of each source and
period of financing.
Investment of funds: The finance manager has to decide to allocate funds into
profitable ventures so that there is safety on investment and regular returns is
possible.
Disposal of surplus: The net profits decision have to be made by the finance
manager. This can be done in two ways:
d. Dividend declaration - It includes identifying the rate of dividends and
other benefits like bonus.
e. Retained profits - The volume has to be decided which will depend
upon expansional, innovational, diversification plans of the company.
Management of cash: Finance manager has to make decisions with regards to
cash management. Cash is required for many purposes like payment of wages and
salaries, payment of electricity and water bills, payment to creditors, meeting
current liabilities, maintenance of enough stock, purchase of raw materials, etc.

Financial controls: The finance manager has not only to plan, procure and utilize
the funds but he also has to exercise control over finances. This can be done
through many techniques like ratio analysis, financial forecasting, cost and profit
control, etc.

What is Business Finance?

Business Finance is the act or process of accumulation and utilisation of funds in
order to accomplish a firm's ultimate goal of maximisation of owners wealth

Who is financial Manager?

Financial staffs are the financial managers who work within the finance department
of an organization. Financial managers are the body of an organization they plan
how the organization should operate, what should organization acquire, how much
cash organization should keep on hand etc. Usually, we see two types of financial
manager in an organization: one is treasurer and other one is controller. We will
discuss who is controller and treasurer later sometime.

Financial managers job responsibilities

Effective cost control and internal control are what separate a highly successful
business from a less-successful business. Financial managers are responsible for
making these differences. Depending on the size of the organization the
responsibility of a financial manager may vary. There are some specific activities
which a financial staff usually performs such as:
Forecasting and planning: Forecasting and planning are the key component of
making your business successful and financial managers perform these activities.
Forecasting and planning means determining your organization future operation,
problems and opportunities. To do it financial staff must interact with employees of
other departments within the organization such marketing, management, etc. as
they look ahead and lay the plans that will shape the firms future. Preparing a good
financial forecast enables you to assess your likely sales incomes, costs, evaluating
financial risk, and develop an understanding of available funding. A financial
forecast is important if you want to raise funds from a third party such as bank.
Major investment and financing decision: Major investment and financing
decision explains how to spend money and how to borrow money. These two are
the most important decision that a financial staff makes. The overall goal of this
investment and financing decision is to maximize shareholder profit. Investment

decision relates to carefully selecting an asset in which organization will invest. An

organization has many investment opportunities, but not all will bring the same
amount of profit. So investment decision means investing in an asset or purchasing
an asset from which organization will gain maximum profit. The second most
important decision a financial staff makes is the financing decision. The financing
decision involves how to raise funds, from where to raise funds, how much to raise
from each source. There are two ways an organization can raise funds: from
companys own money such as issuing securities or from the external funders such
taking debt.
Coordination and control: The financial staff must interact with other employees
of the organization to ensure that organization is performing in the best efficient
way. Every decision within an organization needs financial implication and all
managersfinancial and others need to take this into account. Their decision
affects the organization inventory policies, availability of funds etc. For example,
marketing decisions affects the sales growth as well as influences investment
requirements.
Dealing with the financial markets: Financial staff responsibility to deal with the
financial markets such money market, capital market. Money market is a market
from which an organization can get short term highly liquid debt securities. Capital
market is the opposite of money market. Capital market includes long-term debt
and corporate stocks. These markets affect each firm. Investors either make money
or lose money from these markets.
Risk management: Any form of business faces some risk. These risks can be the
natural disaster such as flood, fire etc. or can be the uncertainty of commodity,
stock market, interest rate etc. Most of these risk can be minimized by purchasing
insurance. And financial managers are responsible for an organizations overall risk
management program. The financial manager is responsible for identifying the risk
and finding ways to manage them and then applying most efficient manner.
Conclusion: Financial managers makes decision what an organization should
purchase, how it should be financed, and how the organization should operate. If
these responsibilities are performed optimally then financial managers can help
maximize the value of the organization.

What are the sources of funds?

A company might raise new funds from the following sources:
The capital markets:
i)
ii)

new share issues, for example, by companies acquiring a stock market

listing for the first time
Rights issues

Loan stock
Retained earnings
Bank borrowing
Government sources
Business expansion scheme funds
Venture capital
Franchising.

Ordinary (equity) shares

Ordinary shares are issued to the owners of a company. They have a nominal or
'face' value, typically of $1 or 50 cents. The market value of a quoted company's
shares bears no relationship to their nominal value, except that when ordinary
shares are issued for cash, the issue price must be equal to or be more than the
nominal value of the shares.
Deferred ordinary shares are a form of ordinary shares, which are entitled to a
dividend only after a certain date or if profits rise above a certain amount. Voting
rights might also differ from those attached to other ordinary shares.
Ordinary shareholders put funds into their company:
a) By paying for a new issue of shares
b) through retained profits.
Simply retaining profits, instead of paying them out in the form of dividends, offers
an important, simple low-cost source of finance, although this method may not
provide enough funds, for example, if the firm is seeking to grow.

A new issue of shares might be made in a variety of different circumstances:

a) The company might want to raise more cash. If it issues ordinary shares for
cash, should the shares be issued pro rata to existing shareholders, so that control
or ownership of the company is not affected? If, for example, a company with
200,000 ordinary shares in issue decides to issue 50,000 new shares to raise cash,
should it offer the new shares to existing shareholders, or should it sell them to
new shareholders instead?
i) If a company sells the new shares to existing shareholders in proportion to their
existing shareholding in the company, we have a rights issue. In the example
above, the 50,000 shares would be issued as a one-in-four rights issue, by offering
shareholders one new share for every four shares they currently hold.
ii) If the number of new shares being issued is small compared to the number of
shares already in issue, it might be decided instead to sell them to new
shareholders, since ownership of the company would only be minimally affected.
b) The company might want to issue shares partly to raise cash, but more
importantly to float' its shares on a stick exchange.
C) The company might issue new shares to the shareholders of another company,
in order to take it over.

Rights issues: A rights issue provides a way of raising new share capital by means
of an offer to existing shareholders, inviting them to subscribe cash for new shares
in proportion to their existing holdings.
For example, a rights issue on a one-for-four basis at 280c per share would mean
that a company is inviting its existing shareholders to subscribe for one new share
for every four shares they hold, at a price of 280c per new share.
A company making a rights issue must set a price which is low enough to secure
the acceptance of shareholders, who are being asked to provide extra funds, but
not too low, so as to avoid excessive dilution of the earnings per share.
Preference shares: Preference shares have a fixed percentage dividend before
any dividend is paid to the ordinary shareholders. As with ordinary shares a
preference dividend can only be paid if sufficient distributable profits are available,
although with 'cumulative' preference shares the right to an unpaid dividend is
carried forward to later years. The arrears of dividend on cumulative preference
shares must be paid before any dividend is paid to the ordinary shareholders.
From the company's point of view, preference shares are advantageous in that:

 Dividends do not have to be paid in a year in which profits are poor, while this is
not the case with interest payments on long term debt (loans or debentures).
Since they do not carry voting rights, preference shares avoid diluting the control
of existing shareholders while an issue of equity shares would not.
Unless they are redeemable, issuing preference shares will lower the company's
gearing. Redeemable preference shares are normally treated as debt when gearing
is calculated.
The issue of preference shares does not restrict the company's borrowing power,
at least in the sense that preference share capital is not secured against assets in
the business.
The non-payment of dividend does not give the preference shareholders the right
to appoint a receiver, a right which is normally given to debenture holders.
However, dividend payments on preference shares are not tax deductible in the way
that interest payments on debt are. Furthermore, for preference shares to be
attractive to investors, the level of payment needs to be higher than for interest on
debt to compensate for the additional risks.
For the investor, preference shares are less attractive than loan stock because:

They cannot be secured on the company's assets

The dividend yield traditionally offered on preference dividends has been
much too low to provide an attractive investment compared with the interest
yields on loan stock in view of the additional risk involved.

Loan stock
Loan stock is long-term debt capital raised by a company for which interest is paid,
usually half yearly and at a fixed rate. Holders of loan stock are therefore long-term
creditors of the company.
Loan stock has a nominal value, which is the debt
interest is paid at a stated "coupon yield" on this
company issues 10% loan stocky the coupon yield will
of the stock, so that $100 of stock will receive $10
quoted is the gross rate, before tax.

owed by the company, and

amount. For example, if a
be 10% of the nominal value
interest each year. The rate

Debentures are a form of loan stock, legally defined as the written

acknowledgement of a debt incurred by a company, normally containing provisions
about the payment of interest and the eventual repayment of capital.

Retained earnings
For any company, the amount of earnings retained within the business has a direct
impact on the amount of dividends. Profit re-invested as retained earnings is profit
that could have been paid as a dividend. The major reasons for using retained
earnings to finance new investments, rather than to pay higher dividends and then
raise new equity for the new investments, are as follows:
a) The management of many companies believes that retained earnings are funds
which do not cost anything, although this is not true. However, it is true that the
use of retained earnings as a source of funds does not lead to a payment of cash.
b) The dividend policy of the company is in practice determined by the directors.
From their standpoint, retained earnings are an attractive source of finance because
investment projects can be undertaken without involving either the shareholders or
any outsiders.
c) The use of retained earnings as opposed to new shares or debentures avoids
issue costs.
d) The use of retained earnings avoids the possibility of a change in control
resulting from an issue of new shares.
Another factor that may be of importance is the financial and taxation position of
the company's shareholders. If, for example, because of taxation considerations,
they would rather make a capital profit (which will only be taxed when shares are
sold) than receive current income, then finance through retained earnings would be
preferred to other methods.
A company must restrict its self-financing through retained profits because
shareholders should be paid a reasonable dividend, in line with realistic
expectations, even if the directors would rather keep the funds for re-investing. At
the same time, a company that is looking for extra funds will not be expected by
investors (such as banks) to pay generous dividends, nor over-generous salaries to
owner-directors.

Bank lending

Borrowings from banks are an important source of finance to companies. Bank

lending is still mainly short term, although medium-term lending is quite common
these days.

Leasing
A lease is an agreement between two parties, the "lessor" and the "lessee". The
lessor owns a capital asset, but allows the lessee to use it. The lessee makes
payments under the terms of the lease to the lessor, for a specified period of time.
Leasing is, therefore, a form of rental. Leased assets have usually been plant and
machinery, cars and commercial vehicles, but might also be computers and office
equipment. There are two basic forms of lease: "operating leases" and "finance
leases".

Operating leases
Operating leases are rental agreements between the lessor and the lessee
whereby:
a) the lessor supplies the equipment to the lessee
b) the lessor is responsible for servicing and maintaining the leased equipment
c) the period of the lease is fairly short, less than the economic life of the asset, so
that at the end of the lease agreement, the lessor can either
i) lease the equipment to someone else, and obtain a good rent for it, or
ii) sell the equipment secondhand.

Finance leases
Finance leases are lease agreements between the user of the leased asset (the
lessee) and a provider of finance (the lessor) for most, or all, of the asset's
expected useful life.
Suppose that a company decides to obtain a company car and finance the
acquisition by means of a finance lease. A car dealer will supply the car. A finance
house will agree to act as lessor in a finance leasing arrangement, and so will
purchase the car from the dealer and lease it to the company. The company will
take possession of the car from the car dealer, and make regular payments

(monthly, quarterly, six monthly or annually) to the finance house under the terms
of the lease.

Hire purchase
Hire purchase is a form of instalment credit. Hire purchase is similar to leasing, with
the exception that ownership of the goods passes to the hire purchase customer on
payment of the final credit instalment, whereas a lessee never becomes the owner
of the goods.
Hire purchase agreements usually involve a finance house.
i)
The
supplier
sells
the
goods
to
the
finance
house.
ii) The supplier delivers the goods to the customer who will eventually purchase
them.
iii) The hire purchase arrangement exists between the finance house and the
customer.
The finance house will always insist that the hirer should pay a deposit towards the
purchase price. The size of the deposit will depend on the finance company's policy
and its assessment of the hirer. This is in contrast to a finance lease, where the
lessee might not be required to make any large initial payment.
An industrial or commercial business can use hire purchase as a source of finance.
With industrial hire purchase, a business customer obtains hire purchase finance
from a finance house in order to purchase the fixed asset. Goods bought by
businesses on hire purchase include company vehicles, plant and machinery, office
equipment and farming machinery.

Government assistance
The government provides finance to companies in cash grants and other forms of
direct assistance, as part of its policy of helping to develop the national economy,
especially in high technology industries and in areas of high unemployment. For
example, the Indigenous Business Development Corporation of Zimbabwe (IBDC)
was set up by the government to assist small indigenous businesses in that country.

Venture capital

Venture capital is money put into an enterprise which may all be lost if the
enterprise fails. A businessman starting up a new business will invest venture
capital of his own, but he will probably need extra funding from a source other than
his own pocket. However, the term 'venture capital' is more specifically associated
with putting money, usually in return for an equity stake, into a new business, a
management buy-out or a major expansion scheme.

Franchising
Franchising is a method of expanding business on less capital than would otherwise
be needed. For suitable businesses, it is an alternative to raising extra capital for
growth. Franchisors include Budget Rent-a-Car, Wimpy, Nando's Chicken and
Chicken Inn.

How do we utilize the FUNDS?

1) Fund will be invested on Fixed Asset: The funds are to be investing in fixed
assets is usually an investment in the future and the value of the investment will
depreciate over time (this is a good thing). As investments depreciate, the return
on the investment increases. And also the company can produce optimum level.
2) Fund will be invested on Current Asset: It is concerned with allocation of funds
among various short term assets. For this we can use working capital management.
The firm must keep in view the need for adequate working capital, and they do not
keep too much funds blocked in inventories, book debts, cash etc

How we take investment decision?

1. What is the scale of the investment - can the company afford it?
2. How long will it be before the investment starts to yield returns?
3. How long will it take to pay back the investment?
4. What are the expected profits from the investment?
5. Could the money that is being ploughed into the investment yield higher returns
elsewhere?
6. Is my financial foundation rock solid? That is, am I debt-free and is my
contingency fund sufficient? If not, I should sell enough stock to repair the cracks in
my foundation.

7. Are my earlier assumptions about my lifetime earnings, retirement and lifestyle

goals, health needs, life expectancy and emotional tolerance of risk still acceptable?
If in doubt, I should once again run the numbers in the retirement planning
worksheets.
8. Are my protective boundaries still in place? If not, what adjustments should I
make at this time? For example, I lose needed diversification if more than 15% of
my total investments is in the stock of my employer. In that case, even if I think my
company's stock will do well in the future, it's probably wise to sell the excess and
reinvest the proceeds in other assets.
9. Am I meeting my giving goals? If not, perhaps I should make lifestyle
adjustments or sell some of my stock holdings in order to fund my giving.

Describe cost of capital?

Cost of capital refers to the opportunity cost of making a specific investment. It is
the rate of return that could have been earned by putting the same money into a
different investment with equal risk. Thus, the cost of capital is the rate of return
required to persuade the investor to make a given investment.
Example:
Cost of capital is determined by the market and represents the degree of perceived
risk by investors. When given the choice between two investments of equal risk,
investors will generally choose the one providing the higher return.
Let's assume Company XYZ is considering whether to renovate its warehouse
systems. The renovation will cost $50 million and is expected to save $10 million
per year over the next 5 years. There is some risk that the renovation will not save
Company XYZ a full $10 million per year. Alternatively, Company XYZ could use the
$50 million to buy equally risky 5-year bonds in ABC Co., which return 12% per
year.
Because the renovation is expected to return 20% per year ($10,000,000 /
$50,000,000), the renovation is a good use of capital, because the 20% return

exceeds the 12% required return XYZ could have gotten by taking the same risk
elsewhere.
The return an investor receives on a company security is the cost of that security to
the company that issued it. A company's overall cost of capital is a mixture of
returns needed to compensate all creditors and stockholders. This is often called
the weighted average cost of capital and refers to the weighted average costs of the
company's debt and equity.

Basis for
Comparison
Meaning

Calculation

Advantage

Accounting Profit

Economic Profit

Normal Profit

Accounting Profit is the

net income of the
company earned
during a particular
accounting year.
Accounting Profit =
Total Revenue - Total
Explicit Cost

Economic Profit is
the remaining
surplus left after
deducting total costs
from total revenue.
Economic Profit =
Total Revenue (Total Explicit + Total
Implicit Cost)
Shows how well the
company is
allocating its
resources.

Normal Profit is
the least amount
of profit needed
for its survival.

Reflects the
Profitability of the
company.

Total Revenue =
Total Cost (i.e.
explicit and
implicit)
Helpful in
knowing the
future prospects
of the company.