From the course: Finance for Non-Financial Managers

The purpose of finance

From the course: Finance for Non-Financial Managers

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The purpose of finance

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- Numbers are everywhere. - You might say that you aren't a numbers person, but that statement does not make the numbers go away. - Whether you're in marketing, HR, supply chain strategy, or any other business area, numbers are a key element of all discussions relating to productivity and performance. - People who understand the numbers and appreciate how they are used within an organization have a leg up on those who just dismiss the numbers as not being important or not understandable. - Our objective with this course is to help you understand the two most common areas involving numbers within a company: accounting and finance. - You will find that the numbers are just a way to quantify your intuition. - Numbers help us to become systematic in our analysis. - Numbers impose a discipline on us that helps us to consider and quantify all factors relevant to a decision. - Now, it's important to always remember that we don't work for the numbers. Instead, the numbers work for us. The numbers are just a tool to help us make better decisions. - Rather than fear the numbers or dismiss the numbers or cop out and say you're not a numbers person, together, let's get comfortable understanding and using the numbers. - Let's see how we can increase our skillset by getting comfortable with the disciplines and terms associated with these numbers. - We will begin with a discussion of finance. - What is finance? Let's start with a broad definition. - [Instructor 1] First, finance is identifying what things I need. - [Instructor 2] Second, finance is determining how to get the money to buy those things. - [Instructor 1] And third, finance is managing those things efficiently once I have them. - [Instructor 2] Now, let's drill down inside a company - [Instructor 1] First, how do I decide what things I need? Well, there are long-term decisions that need to be made. Do I need to buy some land? Do I need to buy some buildings? Do I need to buy machines? That long-term decision making process is part of finance. - [Instructor 2] Short-term finance decisions include deciding how much cash I need, how much inventory should I have on hand, should I let my customers buy on credit? Making those short-term decisions, it's part of finance. - [Instructor 1] The second area of finance centers on this question: where do I get the money to pay for the things that I need? Do I borrow the money? Do I ask shareholders or partners to pool their personal savings and put them in the company so we can use that money to buy the things that we need? Or do I use internally generated profits? - [Instructor 2] The question underlying the third major area of finance is this. Once I have all those things and I've paid for them, how do I manage them? That's an issue of timing, scheduling, budgets, interfacing with my outside suppliers and my staff, and so forth. - Now, let's consider further the second of the three broad issues. How do I get the money to buy the things that I need? - And this issue of obtaining money applies on both sides. The companies seeking the money and the investors providing the money. - The companies seeking the money consider whether to borrow the money from a bank or other lender, or to receive the money as an investment from partners or shareholders. - In whatever way the company gets the money, they have to get the money from somebody outside the company. - And as outsiders consider providing their scarce resources for financing of a particular company, they must determine whether they want to invest in this company, or do they want to invest in a different company? Do they want to invest the money or loan the money? - And there are third parties involved. Financial institutions such as banks that put these parties together. - [Instructor 1] Finance, deciding what things to buy, getting the money to buy the things that you've decided that you need, and then efficiently managing the resources that you have.

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