MBA in Finance

Why should one go for MBA in Finance specialization: 

 

 

 

 

Finance is one of the most sought after specialization of MBA. Yes!!! It will not be an
exaggeration that Finance is one of the most popular specializations within Master of Business
Administration programs. MBA in Finance is often treated as the sure shot way of securing a
stable, high-paying and lucrative career that offers excellent employment opportunities and
preferential lift to climb the corporate ladder. For those seeking a career that deals with money,
an MBA specialization in finance can prove to be invaluable.
Finance is a field that deals with the study of investments, the dynamics of assets and
liabilities over time under conditions of different degrees of uncertainty and risk.
Finance can also be defined as the science of money management. A key point in finance is the time
value of money, which states that purchasing power of one unit of currency can vary over time.
Finance aims to price assets based on their risk level and their expected rate of return.

Finance sub-categories:

Public finance
Corporate finance
Personal finance

Scope of MBA in Finance:

Finance as a subject involves the management, control and review of the collection, investment and
resources of money as a capital required for an industrial building, plant and working.
MBA in finance programmes provide knowledge about fundamental financial concepts like corporate
finance, budgeting, costing, international finance, investment & securities and working capital
management. Apart from this, MBA in Finance students are also trained in the skill of analytical
thinking, concepts of making managerial financial decisions, striking a balance between risk and
profitability and evolving financial consolidation process for different business models.

 

Roles offered to a person with MBA in Finance:

Job Profiles

 
Financial Manager Many companies want financial managers with an MBA, as these candidates tend to have the analytical abilities and software knowledge required to do the job. Financial managers oversee a company’s financial condition, preparing or reviewing financial reports, analysing trends and advising the top management personnel on finances and profits.
Financial Advisor -- Financial advisors provide investment, retirement, tax and insurance guidance
for clients, including financial goals or investment strategies. This option is especially
tempting for those who want to be their own boss, as one fourth of them are self-employed.
Investment Banker -- The main role of a corporate investment banker is to advise companies,
institutions and governments on how to achieve their financial goals and implement long and
short-term financial plans. Investment bankers help their clients raise money in capital markets
by issuing debt or selling equity in the companies.
Corporate investment bankers provide a range of financial services to companies, institutions and

governments. They manage corporate, strategic and financial opportunities, including:

• mergers
• acquisitions
• bonds and shares
• lending
• privatisations
• initial public offerings (IPOs)

Corporate investment bankers also advise and lead management buyouts, raise capital, provide
strategic advice to clients, and identify and secure new deals.


Risk Manager Risk managers work with companies to assess and identify the potential risks that
may hinder the reputation, safety, security and financial prosperity of their organisation. Risk
managers or analysts specialize in identifying potential causes of accidents or loss, recommending
and implementing preventive measures, and devising plans to minimize costs and damage should a
loss occur, including the purchase of insurance. Risk managers advise organisations on any
potential risks to the profitability or existence of the company. They identify and assess
threats, put plans in place for if things go wrong and decide how to avoid, reduce or transfer
risks.
Risk managers are responsible for managing the risk to the organisation, its employees, customers,
reputation, assets and interests of stakeholders. They may work in a variety of sectors and may

specialise in a number of areas including:

• enterprise risk
• corporate governance
• regulatory and operational risk
• business continuity
• information and security risk
• technology risk
• market and credit risk

A risk manager’s job is inspired by the mantra, “prevention is better than cure”.

Wealth Manager Most often employed by banks and various types of investment firms, wealth
managers provide financial planning services and investment advice to high net worth individuals.
The essential goal of any wealth manager is to sustain and increase the long-term wealth of their
clients. Since wealth management primarily involves capital custodianship, successful
professionals must possess excellent financial instincts, advanced calculation skills and the
ability to plan for future market advances, disruptions and downturns.


Asset Manager The primary function of the Asset Manager is to assist in all aspects of the
administrative, financial, capital and operations of the assigned portfolio.

 

 

Definition of Finance:

Finance is the science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities. Finance consists of financial systems, which include the public, private and government spaces, and the study of finance and financial instruments, which can relate to countless assets and liabilities. Some prefer to divide finance into three distinct categories: public finance, corporate finance and personal finance.

Liabilities:

Liabilities

Liabilities are obligations of the company. Liabilities are incurred in order to fund the ongoing activities of a business. It is debt that arises during the course of business. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. It is recorded on the right side on the balance sheet.

Liabilities may include:

• Loans
• Accounts payable
• Mortgage
• Deferred revenues
• Accrued expenses
• Wages
• Accounts
• Taxes/Income taxes
• Unearned revenues when adjusting entries
• Portions of long term bond to be paid
• Short-term obligations
• Long term bonds
• Notes payables
• Long-term leases
• Pension obligations
• Long-term product warranties
• Interest payable
• Lawsuits Payable
• Bonds payable
• Customer deposits      etc…  

Liabilities of uncertain value or timing are called provisions.

Classification:

1. Current liabilities — these liabilities are reasonably expected to be liquidated within a year. They usually include payables such as wages, accounts, taxes, and accounts payable, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations (e.g. from purchase of equipment).
2. Long-term liabilities — these liabilities are reasonably expected not to be liquidated within a year. They usually include issued long-term bonds, notes payables, long-term leases, pension obligations, and long-term product warranties.

The accounting equation relates assets, liabilities, and owner's equity:

Assets = Liabilities + Owner's Equity

Asset:

What is Asset:

An asset is anything of value that a company owns. This includes cash, property and equipment, inventory, accounts receivables and more. An asset is something that can be converted to cash value. These are the resources owned by a business which benefit its future operations and are convertible to cash.

Following are the common asset accounts:

•  Cash: In accounting, cash includes physical money such as bank notes and coins as well as amount deposited in bank for current use.

•  Accounts Receivable: It includes the money owed to the business by outsiders such as customers and other businesses. In most cases accounts receivable arise from sales or services provided on credit. There is no interest on accounts receivable.

•  Notes Receivable: Notes receivable includes the money owed to business by outsiders for which there is a formal document for proof of debt. In most cases Notes receivable also involve interest.

•  Prepaid Insurance: The cost of insurance premium paid in advance.

•  Inventory: These are goods and materials held by a business for the purpose of sale or for the production process.

•  Supplies: Supplies include items held for use in miscellaneous activities by the business. It may include items used by business staff (for example: stationary products) and items used in production process (for example nails used in production of furniture).

•  Equipment: Equipment having life more than a year. Examples are Vehicles, Production Machinery, Computers etc.

•  Buildings: Buildings owned by the business. Examples are Office Building, Factory Building, Godown, Garage etc.

•  Land: Includes cost of all the land owned by the business. Also includes cost of the land with building on it.

•  Patents, Trade Mark, License: These are assets have no physical existence but have properties of assets.

In other way, Assets can be classified as:

·         Current  Assets: The assets cash, accounts receivable, notes receivable, prepaid insurance, inventory and supplies are categorized as Current Assets.

·         Non-Current Assets:  Equipment, buildings, land and patents are categorized as Non-Current Assets.

Assets can also be classified as:

·         Tangible Assets:  Those assets which have physical existence are called intangible assets.

·         Intangible Assets: Those assets which have no physical existence are called intangible assets.

Balance Sheet:

What is Balance Sheet:

A balance sheet is a snapshot of your business’ financial position on a given day, usually calculated at the end of a quarter or year. It is a summary of your company’s assets, liabilities/obligations, and owner’s financial involvement.

A balance sheet is therefore a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

The balance sheet adheres to the following formula:

Assets = Liabilities + Shareholders’ Equity

Types of Balance Sheet:

Mainly, there are two forms of balance sheet that exists. They are:

• Report Form Balance Sheet
• Account Form Balance Sheet

In addition, Individuals and small businesses tend to have simple balance sheets. Larger businesses tend to have more complex more complex balance sheets, and these are presented in the organisation’s annual report.

Need of balance sheet:

A company/business/corporation needs a Balance sheet when it applies for loans or grants, submitting taxes, or seeking investors. A Balance Sheet is how a business can verify that all their financial records are in check.

There are essentially three accounting categories in the Balance Sheet to keep track of your finances at a given point in time:

• Assets
• Liabilities
• Stockholders' Equity (or Shareholders' Equity)

Assets = Liabilities + Shareholders’ Equity

Equity Instrument:

Definition of Equity Instrument:

Equity instruments are a claim upon a residual value. Stockholders are entitled to the cash flows generated after its bondholders, creditors, and other claimants have been satisfied. Because stock has no maturity date, it is a capital market security.

An equity instrument refers to a document which serves as a legally applicable evidence of the ownership right in a firm, like a share certificate. Equity instruments are, generally, issued to company shareholders and are used to fund the business. It is, however, not necessary that the issued equity must return a dividend for it is based on profits and the terms of business.

Categories of equity instrument

The equity instruments can be divided into numerous categories, the most common ones being:

1. Common stock is one of the equity instruments issued by a public company to raise funds from the public. The shareholders have the privilege of being entitled to co-ownership of the company in addition to having the right to vote at the shareholders meeting as per the proportion of shares. Besides, they also have rights to take decision in important issues like raising capital to pay dividends and merging business. Moreover, the shareholders can also apply for new shares when the company has increased capital or issues a new allocation to the shareholders.
2. Convertible debenture is another type of equity instrument which is similar to common bonds, the only difference being that a convertible debenture can be converted into common stock during the particular rates and prices mentioned in the prospectus. Convertible debentures are quite popular for profitable returns from converted stock are higher than those form common bonds.
3. Preferred stock, another equity instrument, involves shareholders’ participation as a business owner as in common stock. The variation lies in that the preferred shareholders are entitled to receive repayment of capital prior to the common shareholders.
4. Depository receipt is an equity instrument which entitles the rights to reference common bonds, ordinary debentures, and convertible debentures. Investors holding a depository receipt get benefits as shareholders of listed companies in every respects, be it the voting rights or financial rights in the listed companies.
5. Transferable Subscription Rights (TSR) is an equity instrument issued by a company to all shareholders in proporti8on numbers of shares already held by them. This instrument is used as evidence in shares of the company. The existing shareholders can sell/transfer their rights to others if they do not want to exercise their shares. 

Debt Instrument

Definition of Debt Instrument:

The debt market is the market where debt instruments are traded. Debt instruments are assets that require a fixed payment to the holder, usually with interest. Examples of debt instruments include bonds (government or corporate) and mortgages.

A debt instrument is a paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, certificates, mortgages, leases or other agreements between a lender and a borrower.

Debt instruments are a way for markets and participants to easily transfer the ownership of debt obligations from one party to another. Debt obligation transferability increases liquidity and gives creditors a means of trading debt obligations on the market. Without debt instruments acting as a means to facilitate trading, debt is an obligation from one party to another. When a debt instrument is used as a medium to facilitate debt trading, debt obligations can be moved from one party to another quickly and efficiently.

Example:

An XYZ bond might promise to pay 11% interest for 25 years, at which time it promises to make a RS 12,000/- principal payment. 

Types of Claim

There is mainly 3 types of claim:

1. Debt
   a. Capital Market Security
   b. Money Market Security
2. Equity
3. Derivatives
   
   Click on each of the types to know about them.

Financial Securities

Financial securities are simply pieces of paper with contractual provisions that entitle their owners to specific rights and claims on specific cash flows or values.

The variety of financial securities is limited only by human creativity,ingenuity, and governmental regulations. At the risk of oversimplification, we can classify most financial securities by the type of claim and time until maturity. In addition, some securities actually are created from packages of other securities.


To know more about different types of claims, click on the below link:

Type of Claim

The Corporate Life Cycle

Many behemoth corporations, including Apple Computer and HP, began life in a garage or basement. How is it possible for such companies to grow into the giants we see today? No two company develop in exactly the same way, but below are some typical stages in the corporate life cycle.

1. Starting Up as a Proprietorship
2. More Than One Owner: A Partnership
3. Many Owners: A Corporation 
   
   
   Each will be discussed next section:

3 Key Attributes of Successful Companies

All successful companies has 3 key attributes:

1. Successful companies have skilled people at all levels inside the company, including leaders, managers, and capable workforce.
2. Successful companies have strong relationship with groups outside the company. For example, successful companies develop win-win relationships with suppliers and excel in customer relationship management.
3. Success companies have enough funding to execute their plans and support their operations. Most companies need to cash to purchase land, buildings, equipment, and materials. Companies can reinvest a portion of their earnings, but most growing companies must also raise additional funds externally by some combination of selling stock and/or borrowing in the financial markets.
   
   
   Just as a stool needs all three legs to stand, a successful company must have all three attributes:
   
   * Skilled People
   * Strong External Relationship
   * Sufficient Capital

2 Main Goals of Successful Companies

All successful companies in the world, are able to accomplish two main goals:

1. All successful companies identify, create, and deliver products or services that are highly valued by customers- so highly valued that customers choose to purchase from them rather than from their competitors.
   
   
2. All successful companies sell their products/services at a price that are high enough to cover costs and to compensate owners and creditors for the use of their money and their exposure to risk.

If all companies would be successful, you wouldn't need an MBA.

Finance vs Accounting

Accounting:

Accounting is the practice of preparing accounting records, including measuring, preparation, analyzing, and the interpretation of financial statements. These records are used to develop and provide data measuring the performance of the firm, assessing its financial position, and paying taxes.

Accounting is the methodical or precise recording, reporting, and assessment of financial deals and transactions of a business. Accounting also involves the preparation of statements or declarations concerning assets, liabilities, and outcomes of operations of a business.

Finance:

Finance is the study of money and capital markets which deals with many of the topics covered in macroeconomics. It is the management and control of assets and investments, which focuses on the decisions of individual, financial and other institutions as they choose securities for their investments portfolios. Also, managerial finance involves the actual management of the firm, as well as profiling and managing project risks.

Finance is the efficient and productive management of assets and liabilities based on existing information.

	Accounting	Finance
Typical course content	Auditing	Advanced derivatives
	Budget analysis	Asset markets
	Business strategy	Behavioural finance
	Financial accounting	Corporate finance
	Financial reporting	Economics/econometrics
	Forensic accounting	Financial mathematics
	Information systems	Financial management
	International accounting	Financial markets
	Macro/microeconomics	Financial planning
	Management accounting	Financial engineering
	Professional standards and ethics	Financial accounting
	Quantitative analysis	Financial reporting
	Risk management	International finance
	Tax accounting	Private equity
		Risk management
		Venture capital
Career potential	Accountant (trainee, public, professional and certified)	Commercial banker
	Actuary	Financial consultant
	Auditor	Financial manager
	Bookkeeper	Financial trader
	Budget analyst	Hedge fund manager
	Credit controller	Insurance officer
	Financial consultant	Investment banker
	Financial examiner	Quant specialist
	Forensic accountant
	Payroll administrator
	Risk assessor
	Tax advisor
	Treasurer
Key skills gained	Quantitative skill	Understanding of industry practices and principles
	Specialized knowledge of varied accounting topics and techniques	Strong theoretical knowledge
	Awareness of GAAP (generally accepted accounting principles)	Research skills
	Knowledge of accounting regulation issues	Communication skills
	Strong understanding of business industry	Knowledge of stock market, trade and investment
		Analytical skills
		Ability to understand and interpret numerical and statistical data
		Up-to-date knowledge of correct business practices
Types of qualification	Undergraduate level:	Undergraduate level:
	Bachelor of Accountancy (BAcc, BAcy or BAccty); Bachelor of Arts in Accounting (BA/ACC); Bachelor of Science in Accounting (BSc/ACC)	Bachelor of Arts in Finance (BA/F); Bachelor of Science in Finance (BSc/F)
	Graduate level:	Graduate level:
	Master of Accounting (MAcc or Mac); Master of Professional Accounting (MPA, MPAc, MPAcc or MPAcy); Master of Science in Accounting (MSA)	Master of Science in Finance (MSF); Master of Finance (M.Fin); Master of Financial Economics (MFE); Master of Applied Finance (MAF)
Professional accreditations	CPA (Certified Public Accountant - US)	CFA (Chartered Financial Analyst);CTP (Certified Treasury Professional); CPRM (Certified Professional Risk Manager); CF(Corporate Finance Qualification);CVA (Certified Valuation Analyst);CQF (Certificate in Quantitative Finance)
	ACA/CA (Chartered Accountant – UK and Commonwealth)
	ACCA (Chartered Certified   Accountant – UK)
Salary potential	Average postgraduate starting salary in the US: US$62,374	Average postgraduate starting salary in the US: US$71,527

                                                                                                                                                                                                                                                                                                                                                                                                            

Skills needed to succeed
In-demand finance skills	In-demand accounting skills
Financial analysis	Accounting
Accounting	Account reconciliation
Forecasting	Financial statements
Financial reporting	General ledger
Economics	Financial reporting
Financial planning & analysis	Generally accepted accounting principles (GAAP)
SAP	Accounts payable & receivable
Financial statements	Balance sheet
Financial modeling	Public accounting
Variance analysis	Accounting management
Finance majors’ top job titles
Financial Analyst	Financial Analyst
Applications Developer	Staff Accountant
Quantitative Analyst	Accounting Manager
Credit Manager	Tax Manager