BUSINESS FINANCE 12

CHAPTER 1

 Financial statements is a formal record of the financial activities and position of a

business, person, or other entity. Relevant financial information is presented in a
structured manner and in a form easy to understand.
 Accounting principles are the rules and guidelines that companies must follow when
reporting financial data.
 Economic Theory provides an outlet for research in all areas of economics based on
rigorous theoretical reasoning and on topics in mathematics that are supported by the
analysis of economic problems. Published articles contribute to the understanding and
solution of substantive economic problems.
 Financial management focuses on ratios, equity and debt. Financial managers are the
people who will do research and based on the research, decide what sort of capital to
obtain in order to fund the company's assets as well as maximizing the value of the firm
for all the stakeholders.
 A capital market is a financial market in which long-term debt or equity-backed
securities are bought and sold. Capital markets channel the wealth of savers to those
who can put it to long-term productive use, such as companies or governments making
long-term investments.
 Investments. Another area of finance is investments. Within a business, particularly a
large business, the firm may invest in assets ranging from short-term securities to long-
term securities like stocks and bonds. The business invests for the same reason
individuals invest—to earn a return.
 Portfolio Analysis is the process of reviewing or assessing the elements of the entire
portfolio of securities or products in a business. The review is done for careful analysis of
risk and return. Portfolio Analysis conducted at regular intervals helps the investor to
make changes in the portfolio allocation and change them according to the changing
market and different circumstances. The analysis also helps in proper resource/asset
allocation to different elements in the portfolio.
 A market analysis studies the attractiveness and the dynamics of a special market within
a special industry. It is part of the industry analysis and thus in turn of the global
environmental analysis. Through all of these analyses, the strengths, weaknesses,
opportunities and threats of a company can be identified.
 Behavioral finance, a sub-field of behavioral economics, proposes psychology-based
theories to explain stock market anomalies, such as severe rises or falls in stock price.
The purpose is to identify and understand why people make certain financial choices.
 The Investment Decision relates to the decision made by the investors or the top level
management with respect to the amount of funds to be deployed in the investment
opportunities. Simply, selecting the type of assets in which the funds will be invested by
the firm is termed as the investment decision.

CHAPTER 2

 A financial intermediary is an institution or individual that serves as a middleman

among diverse parties in order to facilitate financial transactions. Common types include
commercial banks, investment banks, stockbrokers, pooled investment funds, and stock
exchanges.
 Financial instruments are assets that can be traded. They can also be seen as packages
of capital that may be traded. Most types of financial instruments provide an efficient
flow and transfer of capital all throughout the world's investors. These assets can be
cash, a contractual right to deliver or receive cash or another type of financial
instrument, or evidence of one's ownership of an entity.
 A financial market is a market in which people trade financial securities and derivatives
such as futures and options at low transaction costs. Securities include stocks and
bonds, and precious metals.
 Underwriting is the process by which investment bankers raise investment capital from
investors on behalf of corporations and governments that are issuing either equity or
debt securities.
 Investment Houses are individuals or organizations that are engaged in investment
banking and financing activity. There are different kinds of investment houses,
depending upon the type of financial activities they choose to involve with. Some of
them serve the role of brokerages for shares and stocks, while others act as short term
and long term investors in different businesses and asset classes such as real estate.
Some investment houses act purely as financiers, and do not involve in the day to day
running or decision making activities of the business.
 A trust company is a legal entity that acts as a fiduciary, agent or trustee on behalf of a
person or business for the purpose of administration, management and the eventual
transfer of assets to a beneficial party.
 A mutual fund is an investment vehicle made up of a pool of money collected from
many investors for the purpose of investing in securities such as stocks, bonds, money
market instruments and other assets.
 Trading activity status. Definition: A descriptor of the status of the activities that an
entity engages in, in the course of carrying on its business, at a point in time. Trading is
 not limited to buying or selling goods, and trading activities are not necessarily profit-
making or profit motivated activities.
 A debenture is a type of debt instrument that is not secured by physical assets or
collateral. Debentures are backed only by the general creditworthiness and reputation
of the issuer. Both corporations and governments frequently issue this type of bond to
secure capital.

Although the term bonds and debentures are often used interchangeably the two are distinctly
different: A bond is typically a loan that is secured by a specific physical asset. A debenture is
secured only by the issuer's promise to pay the interest and loan principal.