D076 Finance Skills for Managers A NEW COMPLETE VERSION STUDY
GUIDE - n/a 2025 Western Governors University
What is Finance?
● Finance = Future-Oriented
○ Finance focuses on managing and allocating funds (e.g., investing, budgeting,
forecasting).
○ Accounting = Past-Oriented
○ Accounting records, reports, and summarizes past financial information.
Key Differences Between Finance and Accounting:
● Finance = Future (Managing money to make decisions about investment, borrowing, etc.)
● Accounting = Past (Recording what has already happened financially)
,Three Subspecialties in Finance:
1. Business Finance (Managerial Finance)
○ Focus: Funding and managing money for businesses to increase value.
○ Key activities: Deciding how to finance operations and how to allocate funds.
2. Investments
○ Focus: Investing money to generate future wealth.
○ Key activities: Deciding where to invest (stocks, bonds, etc.) and asset pricing
(figuring out the value of investments).
3. Financial Institutions
○ Focus: Organizations that deal with money (banks, insurance companies,
investment firms).
○ Key activities: Accepting deposits, providing loans, offering investment products, and
brokering financial transactions.
Summary Points to Remember:
● Finance = Managing & Allocating Funds (Future-focused)
● Accounting = Recording Past Financial Transactions (Past-focused)
● Business Finance = Managing funds to increase business value.
● Investments = Investing money to grow wealth.
● Financial Institutions = Firms that manage deposits, loans, and investments.
Personal Finance vs. Business Finance:
● Personal Finance:
○ Applies finance to individual life decisions (e.g., loans, savings, investments).
○ Common questions:
■ Should I rent or buy a house?
■ How much should I save for retirement?
■ Should I finance a car or pay cash?
■ What stocks should I invest in?
● Business Finance:
○ Applies finance to business decisions (e.g., investments, capital raising, cost- cutting).
, ○ Common questions:
■ Is a new product adding value to the firm?
■ Should the firm outsource production?
■ How should the firm raise money (loans, bonds, or stock)?
■ Should the firm buy new equipment?
Key Principle: Benefit vs. Cost
● Whether personal or business finance, the main principle is to weigh the benefits of an action
against the costs.
Personal Financial Goals:
● Maximizing Utility:
○ Utility refers to the happiness or satisfaction you get from your financial
decisions (e.g., buying a car, saving for retirement).
○ Everyone has different preferences—what gives one person happiness might not be the
same for someone else.
○ Example: Buying a nice car may bring more happiness (utility) but requires
sacrificing something else (e.g., eating out less or buying fewer clothes).
Business Financial Goals:
● Maximizing Wealth:
○ The main goal for businesses is to maximize wealth:
■ For publicly traded companies, it’s to maximize shareholder wealth.
■ For privately held companies, it’s to maximize owner wealth.
● Financial Manager’s Role:
○ A financial manager acts on behalf of the owners (or shareholders) and makes decisions
to maximize wealth (e.g., managing investments, financing, and overall firm strategy).
Lesson Summary:
● Personal Finance: Focuses on maximizing utility by making decisions that balance benefits
and costs.
● Business Finance: Focuses on maximizing owner or shareholder wealth.
● The key principle in both personal and business finance is comparing benefits vs. costs
before making financial decisions.
Three Main Tasks of a Financial Manager:
1. Making Investment Decisions
, ○ Evaluate potential projects to determine if their benefits outweigh the costs.
○ Example: Before launching Xbox, Microsoft’s financial manager assessed the cost of
R&D vs. expected revenue from the product.
2. Making Financing Decisions
○ Decide how to fund investments (e.g., issuing new stocks or bonds).
○ Example: If a company needs to fund a large project, the financial manager may raise
capital by selling equity (stocks) or taking on debt (bonds).
3. Managing Working Capital
○ Oversee daily financial operations: ensuring the firm has enough cash for daily
expenses, managing inventory, setting credit policies for customers, and paying
suppliers.
Common Careers in Finance:
1. Corporate Finance
○ Role: Financial analysts assess reports, provide strategic planning, and help with
investments and financing decisions.
○ Career Path: Financial analyst → Senior financial roles → CFO (Chief Financial
Officer).
○ Skills: Financial analysis, budgeting, forecasting, strategic planning.
2. Investment Banking
○ Role: Analysts perform financial analyses and prepare presentations (pitch
books) to attract clients.
○ Career Path: Analyst → Associate → Vice President → Senior banker (e.g.,
Managing Director).
○ Specializations: Mergers & acquisitions (M&A), corporate offerings, sales &
trading.
3. Private Equity (PE)
○ Role: PE firms invest in privately-held companies (angel investors, venture
capitalists).
○ Career Path: Analyst → Associate → Principal → Managing Partner.
○ Focus: Evaluate deals, monitor investments, and help firms grow.
4. Commercial Banking
○ Role: Provide loans, manage deposits, and assess the creditworthiness of clients.
○ Entry Level: Bank teller → Credit analyst or personal banker → Branch
management.
○ Skills: Risk assessment, customer service, financial analysis.
5. Financial Planning
○ Role: Help individuals plan their financial future, including budgeting, retirement
planning, and investments.
○ Career Path: Financial planner → Certified Financial Planner (CFP).
○ Skills: Investment advice, retirement planning, tax strategies.
6. Insurance
○ Role: Insurance agents, underwriters, and actuaries manage risk by providing
coverage to individuals or businesses.
○ Specializations: Property/casualty, life insurance, corporate risk management.
○ Skills: Risk analysis, statistics, customer relations.
GUIDE - n/a 2025 Western Governors University
What is Finance?
● Finance = Future-Oriented
○ Finance focuses on managing and allocating funds (e.g., investing, budgeting,
forecasting).
○ Accounting = Past-Oriented
○ Accounting records, reports, and summarizes past financial information.
Key Differences Between Finance and Accounting:
● Finance = Future (Managing money to make decisions about investment, borrowing, etc.)
● Accounting = Past (Recording what has already happened financially)
,Three Subspecialties in Finance:
1. Business Finance (Managerial Finance)
○ Focus: Funding and managing money for businesses to increase value.
○ Key activities: Deciding how to finance operations and how to allocate funds.
2. Investments
○ Focus: Investing money to generate future wealth.
○ Key activities: Deciding where to invest (stocks, bonds, etc.) and asset pricing
(figuring out the value of investments).
3. Financial Institutions
○ Focus: Organizations that deal with money (banks, insurance companies,
investment firms).
○ Key activities: Accepting deposits, providing loans, offering investment products, and
brokering financial transactions.
Summary Points to Remember:
● Finance = Managing & Allocating Funds (Future-focused)
● Accounting = Recording Past Financial Transactions (Past-focused)
● Business Finance = Managing funds to increase business value.
● Investments = Investing money to grow wealth.
● Financial Institutions = Firms that manage deposits, loans, and investments.
Personal Finance vs. Business Finance:
● Personal Finance:
○ Applies finance to individual life decisions (e.g., loans, savings, investments).
○ Common questions:
■ Should I rent or buy a house?
■ How much should I save for retirement?
■ Should I finance a car or pay cash?
■ What stocks should I invest in?
● Business Finance:
○ Applies finance to business decisions (e.g., investments, capital raising, cost- cutting).
, ○ Common questions:
■ Is a new product adding value to the firm?
■ Should the firm outsource production?
■ How should the firm raise money (loans, bonds, or stock)?
■ Should the firm buy new equipment?
Key Principle: Benefit vs. Cost
● Whether personal or business finance, the main principle is to weigh the benefits of an action
against the costs.
Personal Financial Goals:
● Maximizing Utility:
○ Utility refers to the happiness or satisfaction you get from your financial
decisions (e.g., buying a car, saving for retirement).
○ Everyone has different preferences—what gives one person happiness might not be the
same for someone else.
○ Example: Buying a nice car may bring more happiness (utility) but requires
sacrificing something else (e.g., eating out less or buying fewer clothes).
Business Financial Goals:
● Maximizing Wealth:
○ The main goal for businesses is to maximize wealth:
■ For publicly traded companies, it’s to maximize shareholder wealth.
■ For privately held companies, it’s to maximize owner wealth.
● Financial Manager’s Role:
○ A financial manager acts on behalf of the owners (or shareholders) and makes decisions
to maximize wealth (e.g., managing investments, financing, and overall firm strategy).
Lesson Summary:
● Personal Finance: Focuses on maximizing utility by making decisions that balance benefits
and costs.
● Business Finance: Focuses on maximizing owner or shareholder wealth.
● The key principle in both personal and business finance is comparing benefits vs. costs
before making financial decisions.
Three Main Tasks of a Financial Manager:
1. Making Investment Decisions
, ○ Evaluate potential projects to determine if their benefits outweigh the costs.
○ Example: Before launching Xbox, Microsoft’s financial manager assessed the cost of
R&D vs. expected revenue from the product.
2. Making Financing Decisions
○ Decide how to fund investments (e.g., issuing new stocks or bonds).
○ Example: If a company needs to fund a large project, the financial manager may raise
capital by selling equity (stocks) or taking on debt (bonds).
3. Managing Working Capital
○ Oversee daily financial operations: ensuring the firm has enough cash for daily
expenses, managing inventory, setting credit policies for customers, and paying
suppliers.
Common Careers in Finance:
1. Corporate Finance
○ Role: Financial analysts assess reports, provide strategic planning, and help with
investments and financing decisions.
○ Career Path: Financial analyst → Senior financial roles → CFO (Chief Financial
Officer).
○ Skills: Financial analysis, budgeting, forecasting, strategic planning.
2. Investment Banking
○ Role: Analysts perform financial analyses and prepare presentations (pitch
books) to attract clients.
○ Career Path: Analyst → Associate → Vice President → Senior banker (e.g.,
Managing Director).
○ Specializations: Mergers & acquisitions (M&A), corporate offerings, sales &
trading.
3. Private Equity (PE)
○ Role: PE firms invest in privately-held companies (angel investors, venture
capitalists).
○ Career Path: Analyst → Associate → Principal → Managing Partner.
○ Focus: Evaluate deals, monitor investments, and help firms grow.
4. Commercial Banking
○ Role: Provide loans, manage deposits, and assess the creditworthiness of clients.
○ Entry Level: Bank teller → Credit analyst or personal banker → Branch
management.
○ Skills: Risk assessment, customer service, financial analysis.
5. Financial Planning
○ Role: Help individuals plan their financial future, including budgeting, retirement
planning, and investments.
○ Career Path: Financial planner → Certified Financial Planner (CFP).
○ Skills: Investment advice, retirement planning, tax strategies.
6. Insurance
○ Role: Insurance agents, underwriters, and actuaries manage risk by providing
coverage to individuals or businesses.
○ Specializations: Property/casualty, life insurance, corporate risk management.
○ Skills: Risk analysis, statistics, customer relations.
