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IMPORTANT THINGS IN FINANCE
1. Balance Sheet - A company balance sheet is also known as statement of finance. - The Balance sheet together with income statement and cash flow statement. - Balance sheet is statement of net worth. It is Broken into three sections. **ASSET = LIABILITIES +EQUITY
- Income Statement**
- Find Out Profit and loss of company.
- Statement Display the company
- Revenue
- Coats
- Gross Profit
- Selling and administrative expenses
- Tax paid
- Net profit
- Income Statement is a financial statement that shows you company's income and expenditure. 3.Cash Flow statement
- A Cash flow statement is a financial statement that shows how cash ENTERED and EXITED a company during an accounting period
- Cash Flow Statement act as a bridge between the income statement and balance sheet by showing how many moved IN and OUT of business - There are three Activities
- Operating
- Investing
- Financing 4. Risk Management
- Risk Management is a process of identifying, assuring, and controlling threat to the organisation capital and earning.
- These risks stem of a variety of sources including financial uncertainties, legal liabilities, technological issues, error accidents.
5. Fund Investment - An investment fund is a supply of capital belonging to numerous investors used to collectively purchases securities while each other investor retains ownership and control of his own share. 6. Compliance Function - Compliance function is key function of bank second line of defence for managing risks. There role is to engage that bank operate with integrity and there to applicable laws, regulation, and internal policies. There are two types 1. Corporate 2. Regulatory Both the corporate and regulatory complains consist of a framework of rules, regulation, and practices to follow 7. Institutional Investor - An Institutional is a company or organization that invest money or behalf of client or member hedge funds are example of institutional investor 8. Financial Modelling - Financial Modelling is the process of creating a summary of company expenses and earning in the form of a spreadsheet that can be used to calculate the impact of a future event or decision. 9. Capital Market - Capital Marketing is the place where buyer and serve include in trade BUYING AND SELLING or financial securities like bond, share, equities etc - Capital Market trades mostly in long term securities. 10. Scalping Trading - Scalping trading is all about small profit with multiple trades. This helps reduce the losses and generate daily profits.
- It means buying and selling stocks on the same trading day. It also known as day trading. 11. NIFTY
- (National Stocks Exchange Fifty) (NSE) introduced in 1996 12.SENSEX
- Sensex refers to the bench mark index of the BSE in India. **BSE – Bombay Stock Exchange
- Auditing**
- Auditing refers to the examination of the Financial Statement or record of the organisation. Auditing is carried out after the final preparation of financial account and statement.
17. Golden Rules of Accounting - Accounting is the processor keeping the accounting books of the financial transaction of company. 18. Finance - Finance is the management of money including activities such as investing, borrowing, lending, budgeting, saving, and forecasting to achieve financial goals. **19. Difference between Account payable and Receivable
- Depreciation**
- Depreciation represents the estimated reduction in the value of a fixed assets with the fiscal year. 21. Working capital
- Working capital is a financial metric which represented operating liquidity available to business, organisation.
- Working capital is the current assets minus current liabilities. Working capital =Current Assets-Current liabilities.
Personal
Account
Debit the
Reciver
Credit the
giver
Real
Account
Debit what
comes IN
Credit what
goes OUT
Account payable Account receivable 1 .Account payable is the amount that the company to its creditors. 1. Account receivable is that amount costumer owns the company.
2. Account payable is placed under current liabilities on balance sheet. 2 .Account receivable is under current assets on balance sheet. 3 .AP results in each flow. 3 .AR results in cash flow. 4.AP is the outcome of credit purchase. 4. AR is the outcome of credit sale. 5 .In the case of AP money must be paid. 5 .In the case ARSUBS money must collected.
Nominal
Account
Debit
expenses &
losses
Credit
Incomes &
Gains
22. Retail Banking
- Retail Banking also known as the consumer banking is that provide financial services to individual consumer rather the business
- Retail Banking is the way for individual consumer to manage their money, have access to credit and deposited their money in a secure manner. **23. Financial Instrument
- Equity** Equities are the share in the ownership of the company of the company. 2. Debt Securities Instruments issued by the government or companies to raise fund are debt securities. 3. Derivatives It the contract between two or more underlying assets. 4. Mutual Funds It is the instrument that collect money from several investors and invest the money in various assets. 5. Exchange trade funds Financial Resources of multiple investors are pooled and is later used to buy capital market instrument. 6. Financial reporting Communication of Financial reporting and performance to the stake holders STAKEHOLDERS
- Customers
- Employees
- Invertor
- Supplies
- Government 24 .Components of Financial reporting
- Financial report includes a. Financial Performance b. Income Statement c. Balance Sheet d. cashflow Statement
29. Correction of accounting error
- An error connection is the connection of an error in financial statement that were previously issued. Error correction can be error in a measurement, recognition, presentation, or disclosure in financial statement. 30. Cash Application
- Cash application is the process of matching income payment to outstanding invoices and to the proper account where they can be entered.
- Cash application is part of Account Receivables (AR) process that applies incoming payment to the correct customer accounts and receivable invoices. 31. Audit bills
- Bills audit performs on sources bills to help you determine if they are correct. If the sources bill are correct it follows the generated bills are correct. There are two types of AUDIT
- External Audit
- Internal audit **32. Close ended funds and Open-Ended funds
- P2P Cycle (PROCURE TO PAY)**
- P2P cycle function deals with a business procurement cycle.
- P2P cycle of action and events that a business engages in when they require goods and services from the outside suppliers. 34. O2C Cycle (ORDER TO CASH)
- This process deals with the entire customer ordering and fulfilment process. 35. Debit
- Debit represented money being paid out of a particular account. 36. Credit
- Credit represented money being paid in.
CLOSE ENDED FUNDS OPEN ENDED FUNDS
The close ended funds can be brought only during there launch and can be redeem when the fund investment tenure is over. While open ended funds can be brought or sold any time.
**37. Primary market and secondary market
- Swaps**
- Swaps are financial agreements where two parties exchange cash flow or financial instruments based on pre-agreed terms. Types of Swaps
- Interest rate swap
- Currency swap
- Commodity swap
- Credit default swap
- Equity swap 39. Debenture
- A debenture is type of long-term business debt not secured by any collateral.
- A debenture is a medium to long term debt instrument used by large companies to borrow money, at fixed rate of interest. 40. Stocks
- A Stock is a general term used to describe the ownership certificate of any company. Holding a particular company share makes you a shareholder. There are two types of stocks
- Common
- Preferred
PRIMARY MARKET SECONDARY MARKET
1. A capital market where securities are issued for the first time. 1. A capital market for trading previously issued securities. 2. New issue market. 2. After issue market. 3. Corporate government bonds, notes, and bills. 3. Equity share, bonds, preference shares. 4. Direct type of purchasing. 4. Indirect type of purchasing. 5. Beneficiary issue company. 5. Beneficiary issue investor.
3. Trade confirmation – Both parties receive trade confirmation with details such as quantity, price, and date. 4. Clearing – - Netting – The net obligation of each party is calculated. - Risk Management – Ensure sufficient margin or funds are available for the trade. 5. Settlement – The actual exchange of assets for payment occurs. 6. Post-settlement – - Reconciliation – All parties verify that the transaction is completed as expected. - Reporting – Trades are reported to regulatory bodies and included in financial records. 47. Difference between Put and Call option
Aspect Put Option Call Option
Definition 1. Gives the holder the right to sell an asset.
1. Gives the holder the right to buy an asset. Purpose 2. Used when expecting a price decrease. 2. Used when expecting a price increase. Obligation 3. No obligation to sell; can choose to let it expire. 3. No obligation to buy; can choose to let it expire. Profit Scenario 4. Profitable when the asset price decreases 4. Allows benefiting from a price rise in the asset. Buyer’s Position 5. Protects against a price drop in the asset. 5. Allows benefiting from a price rise in the asset. Seller’s Obligation 6. Obligated to buy the asset if exercised. 6. Obligated to sell the asset if exercised. 48. What is Investment Banking.
- Investment banking is a division of financial services that helps companies, governments, and institutions raise capital, provide strategic advisory services (e.g., mergers and acquisitions), and manage financial assets. **Types of Investment Banking
- Bulge Bracket Banks** : Large multinational banks offering a wide range of services globally (e.g., Goldman Sachs, J.P. Morgan). 2. Middle-Market Banks : Focus on mid-sized companies and regional markets. 3. Boutique Banks : Specialized in specific industries or services like M&A advisory or restructuring.
Key Functions of Investment Banking
1. Capital Raising : Issuing stocks, bonds, and other securities to raise funds. 2. Advisory Services : Mergers, acquisitions, and restructuring consulting. 3. Trading and Sales : Buying and selling securities to generate profit for the bank or clients. 4. Market Making : Facilitating liquidity by matching buyers and sellers of securities. 5. Underwriting : Assisting in the issuance of new securities by pricing and selling them to investors. 49. Capital
- Amount Invested by the owner in his business.
- Capital = Assets - Liabilities Examples: Cash, machinery, or any other assets contributed by the owner 50. Liability
- Liability refers to a company's financial obligations or debts that arise during its operations.
- Current Liabilities – Payable within one year (e.g., accounts payable, short-term loans).
- Non-Current Liabilities – Payable over a longer period ( e.g., long-term loans, bonds payable). 51. Assets
- Assets are the economics resources of the business expressed in monetary terms.
- Tangible assets – Machinery, Furniture, office building, cash.
- Intangible assets – Trademark, Copyright intellectual property, goodwill.
- Current Asset – Debtors, stock, cash, Bank balance.
- Fixed Asset – Machinery, Plants, Furniture, Land, Building. 52. KYC (Know your customer) KYC is a process used by businesses, especially financial institutions, to verify the identity of their clients. It helps prevent fraud, money laundering, and financial crimes. Key Aspects of KYC:
- Identity Verification: Collecting documents like Aadhar Card, PAN Card, Passport, or Driver’s License.
- Address Verification: Proof of residence such as a utility bill or bank statement.
- Financial Profile Check: Verifying income sources, bank details, and financial transactions.
- Risk Assessment: Identifying potential risks associated with a customer.
57. Subsidiary Book/ Day Book
- All business transaction is first recorded in journal. Journals is a book where all the journal entries are posted.
- Cash book
- Purchase Journal Book
- Purchase Return Book
- Sale Journal Book
- Sale Return Book 58. Investment Banking
- An investment bank is a financial institution that assists individuals, corporation, and government in raising finance by underwriting and act as the client’s agent in the insurance of securities or both.
- An investment bank may also assist companies involves in merger and acquisition and provide ancillary services such as trading of derivatives and equity securities and FICC ( Fixed Income Clearing Corporation ) Example: City bank, Kotak Mahindra bank, JP morgen bank etc. **Function of Investment Bank
- IPO** An IPO (Initial Public Offering) is the process by which a private company offers its shares to the public for the first time to raise capital by getting listed on a stock exchange 2. Investment banking Investment banking is a financial service that helps companies, governments, and institutions raise capital and make strategic financial decisions. 3. Boutiques Boutiques are small, specialized firms offering niche financial services like M&A advisory, wealth management, or private equity, focusing on personalized client service. 4. Merger and Acquisition Legal consolidation of 2 companies and forming a new company is called merger and acquisition. 5. Structuring of derivatives Constructing or forming the derivatives to the Shareholder that it minimizes the risk and minimize the profit. 6. Merchant Banking Merchant banking provides financial advisory, investment, and funding services to businesses, focusing on corporate finance and capital raising.
7. Research The forecasting and revolution of financial risk together with the identification of procedure to avoid or minimize their impact. 8. Risk Management Involves analysing the market and credit risk that trades are taking on to the balance sheet in conducting their daily trades. Types of Investment Banking
- Based on function
- Private or boutique investment banking
- Full-service investment banking
- Brokerage firm
- Commercial banks Trade Life Cycle 59. Merchant Banking
- Merchant banking refers to financial services provided to businesses, including investment, advisory, and funding solutions. It involves activities like underwriting, loan syndication, mergers & acquisitions advisory, and portfolio management. Unlike commercial banks, merchant banks focus on corporate clients rather than individuals. Services Of Merchant Banking
- Corporate Counselling
- Project Counselling
- Loan Syndication
- Issue Management
- Underwriting of Public Issue
- Portfolio Management
- NR Investment Building the Order Placing the Order Monitoring Execution Quality Allocation to Client Account Settlement with Clients Custodians
