Compiled by Allan Simiyu for BBM 312 Students only
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CHAPTER ONE
INTRODUCTION
1.1 Introduction
Whether a business concern is big or small, it needs finance to fulfill its business activities. Finance may be defined as the art and science of managing money. According to Oxford dictionary, the word ‗finance‘ connotes ‗management of money‘. Webster‘s Ninth New Collegiate Dictionary defines finance as ―the Science on study of the management of funds‘ and the management of funds as the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities. Therefore, Finance is defined as the procurement of funds and their effective utilization in business concerns. The concept of finance includes capital, funds, money, and amount. But each word has a unique meaning. Studying and understanding the concept of finance become has an important part of the business concern.
1.2 Corporate Finance
Financial Management or corporate finance, deals with procurement of funds and their effective utilization in the business entities. Financial management is the broadest of the three areas of finance and is important in all types of businesses including banks, financial institutions, industrial concerns, and retail firms, governmental institutions such as schools, hospitals and even local governmental departments. Corporate finance is concerned with budgeting, financial forecasting, cash management, credit administration, and investment analysis and fund procurement of the business concern. Other areas of finance include:
a) Investments- focus on behaviour of financial markets and the pricing of securities.
b) Financial Institutions - They deal with banks and other firms that specialize in bringing the suppliers of funds together with the users of funds.
1.3 Financial Management Decisions
The financial