INTRODUCTION OF FINANCE

In the modern-oriented economy, finance is one of the basis

foundations of all kinds of economic activities. It is the master key, which
provides access to all the sources for being employed in manufacturing and
merchandising activities.
Finance is the lifeblood of an enterprise, every enterprise, irrespective
of size, needs finance to carry on its operations and to achieve its targets. in
our present day economy finance is the provisions of money at the time when
it is required and without adequate finance, no enterprise can possibly
accomplish its objectives.
According to the American Institute of certified public accountants,
financial statements reflect, A combination of recorded facts, accounting
conventions and personal judgments and conventions applied them
materially.

FINANCIAL MANAGEMENT
Financial management is an management which is related to deal
management is concerned with the acquisition, financing and management of
assets with some overall goal in mind.
Financial management influences the profitability or return on
investment of a business. The choice of capital investment decisively affect
the profitability of an undertaking.

Financial management affects the solvency position of a business.

Solvency refers to the ability to service debts paying interest and repaying
principle as these become due. Profitability and nature of debts both concerns
of financial management-govern the solvency aspect.

THE BASIC OBJECTIVES OF FINANCIAL MANAGEMENT ARE

1. Ensuring a fair return to shareholders.
2. building up reserves for growth and expansion
3. Ensuring maximum operational efficiency by efficient and effective
utilization of finance.
4. Ensuring financial discipline in the organization.

FINANCIAL STATEMENT
The financial statement provides a summary of the accounts of
business enterprises. The balance sheet shows the result of operation during
ascertain period.

TYPES OF FINANCIAL STATEMENTS

1. A balance sheet
2. An income statement
BALANCE SHEET
A tabular statement of summary of balances carried forward after an
actual and constructive closing of books of account and kept according to

principles of accounting.

A balance sheet is a snapshot of a business

financial condition at a specific moment in time, usually at the close of an

accounting period. A balance sheet comprises assets, liabilities, and owners
or stockholders equity. Assets and liabilities are divided into short- and longterm obligations including cash accounts such as checking, money market, or
government securities. At any given time, assets must equal liabilities plus
owners equity. An asset is anything the business owns that has monetary
value. Liabilities are the claims of creditors against the assets of the business.

INCOME STATEMENT
Income statement also referred as profit and loss statement (P&L),
earnings statement, operating statement or statement of operations is a
companys financial statement that indicates how the revenue is transformed
into the net income. It displays the revenues recognized for a specific period,
and the cost and expenses charged against these revenues, including write-offs
(e.g., depreciation and amortization of various assets) and taxes. The purpose
of the income statement is to show managers and investors whether the
company made or lost money during the period being reported.

STATEMENT OF CHANGES IN OWNERS EQUITY/RETAINED

EARNINGS

The term Owners equity refers to the claims of the owners of the
business (shareholders) against the assets of the firm. It consists of two
elements; (i) paid-up share capital, i.e. the initial amount of funds invested by
the shareholders; and (ii) retained earnings/reserves and surplus representing
undistributed profits. The statement of changes in owners equity simply
shows the beginning balance of each owners equity account, the reason for
increases and decreases in each, and its ending balance.

STATEMENT OF CHANGES IN FINANCIAL POSITION

The basic financial statements, i.e.; the balance sheet and the profit and
loss account or income statement of a business reveal the net effect of the
various transactions on the operational and financial position of the company.
The balance sheet gives a static view of the resources of a business and the
uses to which these resources have been put at a certain point of time. The
profit and loss do not operate through profit and loss account. Thus, for a
better understanding another statement called statement of changes in
financial position has to be prepared to show the changes in assets and
liabilities from the end of one period to the end anther point of time. the
objective of this statement is to show the movement of funds during a
particular period. The statement of changes in financial position may take any
of the following two forms.
i) Funds Flow Statement

ii) Cash Flow Statement

FINANCIAL ANALYSIS
Financial analysis (also referred to as financial statement analysis or
accounting analysis) refers to an assessment of the viability, stability and
profitability of a business Sub- business or project.
It is performed by professionals who prepare reports that make use of
information taken from financial statement and other reports are usually
presented to top management as one of their bases in making business
decisions. Based on these reports, management may:
Continue or discontinue its main operation or part of its business.
Make or purchase certain materials in the manufacture of its product
Acquire or rent / lease certain

machineries and equipment in the

production of its goods ;

Issue stocks or negotiate for a bank loan to increase its working capital;
Make decisions regarding investing or lending capital;
Other decisions that allow management to make an informed selection
on various alternatives in the conduct of its business.