INTRODUCTION

RAIS AHMAD
ASSISTANT PROFESSOR
DEPARTMENT OF ACCOUNTS, FINANCE & ISLAMIC
FINANCE, KASBIT
M.PHIL (MANAGEMENT SCIENCES)
MBA (FINANCE)
MA (ECO)
FELLOW MEMBER OF PAKISTAN INSTITUTE OF
PUBLIC FINANCE ACCOUNTANT (FPFA 2379)
email: raisahmad42@yahoo.com
Cell No. 0316-6051022
 Teaching Experience

 17 Years Teaching Experience of Higher Education

 14 years at KASBIT from 1st September 2005 to date

 3 years at National Textile College (Affiliated with Federal

Urdu University) as Visiting Faculty for BBA/MBA level

 From Summer-2015 to date teaching as Visiting Faculty of

Institute of Business Management (IoBM).
 Industry Experience
 Worked as Financial Controller form 2001 to 2005 in Parsa
Fashion and Style (Private) limited (Exporters of Garments)

 Worked as Finance Manager from 1996 to 2000 in Universal

Educational System (Private) Limited (Importers of Time Life
Books & Collier’s Encyclopedia)

 Worked as Assistant Manager (Finance) from 1991 to 1995 in UDL

Industrial Limited (Manufacturers of Refrigerators and
Televisions)

 Worked as Accounts Assistant form 1978 to 1990 in Pakistan

Mineral Development Corporation
 Lecture Contents
• Definition
• Financial Activities
• Objectives of the firm
• Financial Decision Making
• Types of Business Organizations
• Financial Securities, Markets, Risk and
Rewards
 FINANCE
Finance is an art and science of
handling money. A branch of economics
concerned with resource allocation as
well as resource management,
acquisition and investment. Simply,
finance deals with matters related to
money and the markets.
The term “finance” may thus
incorporate any of the following:
The study of money and other assets;
The management and control of those assets;
Profiling and managing project risks;
The science of managing money;
As a verb, “to finance” is to provide funds for
business or for an individual’s large purchases
(car, home, etc.).
 Financial Activities
The activity of finance is the
application of a set of techniques
that individuals and organizations
(entities) use to manage their
money, particularly the differences
between income and expenditure
and the risks of their investments.
Finance is used by individuals
(personal finance), by
governments (public finance), by
businesses (corporate finance),
as well as by a wide variety of
organizations including schools
and non-profit organizations.
In general, the goals of each of
the above activities are
achieved through the use of
appropriate financial
instruments, with
consideration to their
institutional setting.
Finance is one of the most
important aspects of business
management. Without proper
financial planning a new enterprise
is unlikely to be successful.
Managing money (a liquid asset) is
essential to ensure a secure future,
both for the individual and an
organization.
 THE OBJECTIVE OF THE FIRM

The goal of the firm’s

management is to maximize
the welfare of the
stockholders.
 FINANCIAL DECISION MAKING

• The investment decision

• The financial Decision

 The investment decision
• In which long-term assets a firm should
invests?
Or
• What long-term investments should the
firm engage in?
• What mix of fixed assets? (Plant,
Equipment, and Land)
and
• What mix of current assets (Cash,
Accounts Receivable and Inventories) will
best facilitate the firm’s production of
goods and services?
 The investment decision

•Revenue Expenditure
•Capital Expenditure
•Capital Budgeting
 The financing decision
The company needs to finance its
assets by acquiring cash from the
financial markets.
• What securities to issue?
• What mix of short term credit, long
term debt, and equity best facilitate
the effort to meet the firm’s
objectives?
The financing decision
 TYPES OF BUSINESS
ORGANIZATIONS
• Sole Proprietorship
• Partnership
• Company / Corporation
 SOLE PROPRIETROSHIP

• It is formed by a single owner

• Liabilities are unlimited
• Profit / loss is for the single
owner
• Decisions are made by single
person
 PARTNERSHIP
• It is formed by a 2 or more persons.
• Partners limit is 2-20.
• Follows Partnership Act 1932.
• Liabilities are unlimited.
• According to Banking Ordinance, banks
cannot be formed with partnership in
Pakistan.
 COMPANY / CORPORATION
• In Pakistan from 1947 to 1984,
companies followed Company’s Act
1913.
• 1984 - 2017 companies followed
Company’s Ordinance 1984.
• FROM 2017 companies following
Company’s Act 2017.
• Liability is limited.
 Types of Companies

Private Limited
• Members were 2-50
• Restriction on transfer of
shares
 Single Member Company (SMC)
• Only one member
• Must write (SMC-Private) Limited
after the name of Company
• Must have at-least two
individuals to act as nominee
director and alternate nominee
director
 Public Limited listed companies
• Members were 7 – Unlimited
• No restriction on transfer of
shares
• Listed with stock exchanges
 Public Limited non-listed companies

• Members are 3 – Unlimited

• No restriction on transfer of
shares
FINANCIAL SECURITIES
MARKETS
RISK AND REWARDS
 FINANCIAL SECURITIES
People with less need to consume now
will provide capital by lending to the
borrowers. Some will choose to invest
in a business and share in the potential
rewards or losses of the firm. Others
may want to provide capital to a
business but may not be willing to take
on the risks of the firm.
Thus, depending on their
personal considerations,
individuals provide capital to a
business primarily in two
distinct forms: as equity capital
or as debt.
 Equity Capital

• Equity is ownership; suppliers

of equity capital (stockholders)
are the owners of the firm.
 Debt Capital

• Debt is borrowing;
suppliers of debt capital
(bondholders) are creditors
of the firm.
 Other forms of capital
In addition to common stocks and
bonds, companies issue other types of
securities to investors.
Some of the more popular securities
are:
 Preferred stock
 Convertible securities
Financial Markets
 PRIMARY & SECONDARY MARKET
• If a company issue new shares, they are sold
in market and increases Company’s capital.
This is called ‘Primary Market’.

• Trade / transfer of already issued shares are

referred to as ‘Secondary Market’. It does not
increase company’s capital. These activities
are normally taken place in Stock Exchange.
 The Rewards to Stockholders
• Dividends

• Capital gains
 Dividends
Corporations may choose periodically to
return a portion of their earnings to
stockholders in the form of a cash
distribution. This distribution is called a cash
dividend. However, instead of paying a cash
reward to its shareholders, it may choose to
issue new share of stock for existing stock-
holder as stock dividend.
 Capital Gains
In addition to cash or stock dividends,
stockholders may expect to sell their stock
in the stock market for more than what
they paid for it. For example, if you bought
a share of Indus Motors stock for Rs.55 on
January 1 and sold it at a later date for
Rs.69; you would have a capital gain of
Rs.14.
 The Risks to Stockholders
• Although stockholders can expect dividends,
there is no assurance that a firm will in fact
pay them.

• Capital loss

• Common stockholders also face a risk when a

company goes bankrupt.
 The Rewards to Bondholders

• Interest Payments

• Capital Gains
 Interest Payments

• Bondholders know exactly the

amount of interest they can
expect periodically for loaning
capital to the company; this rate
is stated on the bond.
 Capital Gains
• If you paid Rs.1,000 for a bond
issued by WAPDA on February
6 and sold it for Rs.1,100 2
years later, you would have a
capital gain of Rs.100.
 The Risks to Bondholders
• Risk of default

• Capital loss