Introuction to Finance

Learning finance is fun. It involves lots of calculations and prudential judgement. Calculations can require simple arithmetic tools to complex statistical tools. The good thing about calculation is that they follow specific rules. However, at times when we need to irritate calculations, it can be cumbersome repeating task again and again. Use of advanced computerized tools and techniques becomes handy to play with this type of problems.

Unlike calculations, prudential judgement requires skills and techniques developed over time. They do not follow specific rules and therefore are likely to be guided by principle and instinct of the decision maker, which needs to align with goal of company. Selecting the best approach out of given multiple alternatives by matching risk and return profile of the company is challenging. Therefore, finance personnel require to be equipped with advanced decision making and statistical tools to cope with the changing role in present turbulent financial world.

Financial statements help cast the future picture of an organisation looking back to the history of the organisation. It guides decision maker outside the organisation and those within the organisation and helps align their interest together.

Objective of financial statements

The objective of general purpose financial statements is to provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions. To meet that objective, financial statements provide information about an entity's: [IAS 1.9]

• assets
• liabilities
• equity
• income and expenses, including gains and losses
• contributions by and distributions to owners
• cash flows

That information, along with other information in the notes, assists users of financial statements in predicting the entity's future cash flows and, in particular, their timing and certainty.

Finance and investment is the study of cash (money) and equivalent. Therefore, finance primarily focus on the study of time value of money. This is also because investors value cash flow rather than profit or loss. Discounting and compounding are simple tools used to define time value of money.