Summary - Business Finance - ثاني ثانوي

38 Business Finance SUMMARY Finance is the discipline of studying money and its management. Many people around the world come into contact with financial institutions on a daily basis. These institutions fulfill a range of important functions for governments, businesses. organizations, and individuals. This includes facilitating and regulating the transfer of funds from lenders to borrowers, and securities from sellers to buyers. An understanding of finance, and how it is approached around the world, is critical in both preparing for a career in business and in safeguarding an individual's own financial security Finance as a discipline is generally divided into three areas: financial institutions, investments, and business finance, although there is some overlap. The study of financial institutions is concerned with organizations such as stock exchanges, financial regulators, banks, Intermediaries, and insurance companies. The study of Investments is largely concerned with the analysis of Individual assets and the construction of well-diversified portfolios. The study of business finance emphasizes the role of the financial manager. Several key financial concepts are discussed: sources of finance, risk and return. financial leverage, and valuation. The sources of funds and assets owned are often summarized in a balance sheet. Individuals and firms make investments to earn a return, but that return is not certain. All investments involve risk. Financial leverage is often considered an important source of risk. Valuation concerns what an asset is worth. Another important concept is the time value of money, which holds that a Riyal received in the future is not equivalent to a Riyal received in the present. This is because money available now can be invested into activities that will generate more money in future. The discipline of finance incorporates elements of accounting and economics. Finance courses are generally offered as part of a program in business, which might also include information systems, human resource management, and marketing. However, finance differs from other disciplines in that it can be studied from a business perspective or from the investor's perspective

PROBLEMS 1. List and briefly describe the three key areas that the discipline of finance is generally divided into, using real-life examples from each area to contextualize your answer. 2. Explain what a balance sheet is, by describing its components and function. 3. Use an example to explain how risk and return are related in financial decision making. 4. Describe two examples of investments that involve an element of risk. In each scenario, suggest ways in which the element of risk might be reduced. 5. Describe the key way in which the study of finance differs from the study of other business disciplines such as human resources or marketing. حرارة التعليم CHAPTER An Introduction to Basic Finance 39

Susiness Finance ASSESSMENT QUESTIONS Choose the correct answer. 1. Alan is earned on an investment such as the sum of income and capital gains generated by an investment. a. asset b. bond c. equity d. return 2. Which of the following is included on a balance sheet? 3. a. asset b. liabilities a. Leverage b. Valuation c. equity d. all included on a balance sheet is the process of determining what an asset is currently worth. c. Bonding d. Return 4. The value of a firm is directly linked to the value of its assets and the decisions of the financial management over time. True/False 5. A Riyal received in the future is equivalent to a Riyal received in the present. True/False 6. Finance, unlike other business disciplines, can be studied from two perspectives: that of the users or that of the suppliers of funds. True/False 7. Which of the following is a key source of information in business finance? a. accounting principles b. financial statements c. both accounting principles and financial statements d. none of these are key sources of information

KEY TERMS Match the terms listed with their definitions. Write the letters of the correct definitions. Term 1. Assets 2. Balance sheet 3. Equity 4. Financial leverage 5. Liabilities 6. Return 7. Risk 8. Valuation Your choice Definition a. The sum total of a firm's assets; a firm's book value or net worth b. What is earned on an investment; the sum of income and capital gains generated by an investment c. Process of determining what an asset is currently worth d. The degree of uncertainty about whether an anticipated return will be achieved e. Items or property owned by a firm household or government and valued in monetary terms f. Use of borrowed funds in return for agreeing to pay a fixed return; use of debt financing g. What an economic unit owes expressed in monetary terms h. A financial statement that enumerates (as of a point in time) what an economic unit owns and owes and its net worth حرارة التعليم CHAPTER An Introduction to Basic Finance 41

Business Finarice MINI CASE 1.1 The Departments of a Business The small business sector is growing in Saudi Arabia. When Omar originally started his own company, he had to take care of every aspect of the business all by himself. As the business has grown, Omar has gradually taken on more employees. He now wishes to organize his team into separate roles, each overseeing a specific part of the business. Omar appoints staff in charge of human resources, information systems, marketing and sales. He believes that organizing the business this way will make it more profitable and maximize the company's value. Task 1. Considering the themes of this chapter, has Omar forgotten any important roles that every business should have, regardless of industry type? 2. How can the field of financial management help Omar maximize the company's value?

MINI CASE 1.2 Green Energy as a Long-Term Investment A central aim of Saudi Vision 2030 is to build a sustainable future through investing in green and renewable energy sources. A young student. Amir, wonders why it is necessary to invest lots of money and resources into new energy sources. "After all," he says, "Saudi Arabia has plenty of oil. Why change our approach now?" His friend, Hasan, has been studying financial management and disagrees, emphasizing the importance of future planning and resource allocation. "Investing today sets us up for tomorrow," says Hasan. Task 1. Do you agree with Amir or Hasan? In terms of business finance, explain some of the benefits of investing today to set us up for tomorrow". 2. Hasan also notes that it is sensible to have a 'diversified economy' that doesn't rely on one main source of revenue, Explain the advantages of a 'diversified' approach. Is there a parallel in relation to investment decisions made by individual investors? وزارة التعليم CHAPTER An Introduction to Basic Finance 43

pul Business Finance M CASE STUDY: E-PAYMENTS MADE EASY WITH MADA Over the last few decades, advances in technology have spurred huge worldwide growth in e-commerce and e-payments. Today, consumers are presented with a range of ways to make digital payments, whether shopping online from the comfort of their homes, or paying for lunch through hand-held smart devices while out and about. The financial institutions are integral to facilitating the transfer of funds from one party to another, and it is through these organizations that this e-commerce revolution has been made possible. The Saudi Central Bank (SAMA) has invested in an infrastructure that connects buyers and sellers electronically. Mada is a simple, reliable, and universally recognized system that connects ATM (automated teller machine) machines and POS (point of sale) devices to a network enabling transactions between accounts, while also giving individuals and businesses access to e-banking services. Mada began as SPAN, the Saudi Payments Network, established in 1990. It is one of several payment-related services offered by Saudi Payments, headquartered in Riyadh, All Saudi banks are required to be compatible with the network, encouraging efficiency through a universally-accepted system across the country. Unlike ATM machines in many other countries worldwide, which often issue a charge for accessing services such as cash withdrawals, mada provides all services in Saudi Arabia to the consumer free of charge. In today's busy world, the convenience of 'tap-and-pay' contactless payment 15. making it a standard preference among many customers and retailers. During the global Covid-19 pandemic, contactless payment became mandatory in many parts of the world, to help prevent the spread of infection. The mada Pay app can be downloaded to any compatible device, such as a smartphone or tablet, and can be used with over 130,000 merchants in Saudi Arabia. Mada also works in conjunction with other global payment service providers, including Visa and Mastercard, to provide international coverage and to utilize their e-payment technology in Saudi Arabia itself. Speaking in March 2018, Ziad Al Yousef of SAMA said: "Mada represents the innovative generation of electronic payments in Saudi Arabia and one of the lastest growing payment systems in the world. Utilizing Mastercard's technology to facilitate online payments via the network will enable Saudi businesses to significantly increase their e-commerce sales by offering consumers more flexibility and convenience and diversity their available payment options." Ongoing investment in mada is key to supporting Saudi Vision 2030. Promoting digital and online payments helps to fuel the Saudi economy, and supports the growth of SMEs (small- and medium-sized enterprises) and hence new job creation. It's not only customers who can benefit from using

a smartphone to pay; merchants can now also accept payments using their phones too, without the need for a separate POS device. This 'tap-to-phone' solution, in partnership with Visa, is ideal for independent businesses, as small shops or cales can take electronic payments without the additional set-up cost of Investing in new hardware. Mada is complemented by other Saudi Payments services that support the objectives of Saudi Vision 2030, including the development of effective e-government. Esal, for example, is a platform providing e-invoicing tools for businesses: Sarie is an instant payment system that transfers funds between local banks, and SADAD is a system principally for paying bills. Saudi Payments overarching mission is to enable "the payments ecosystem through secure, reliable, interoperable and accessible back-end services." Study Questions 1. What is the main function of the financial institutions? Link your answer to the case study. 2. How can e-payments help to promote and support small businesses in the private sector? Online Activity Research a business in Saudi Arabia that has an online shop. Look at the business's online payment options and system it uses for making e-payments. How easy is it to pay for the goods or services online? وزارة التعليم CHAPTER An Introduction to Basic Finance 45