Management of fixed assets ~ Finance Update

Depreciation
Depreciation is the allocation of the cost of an asset over its useful life as determined at the time of purchase. It is calculated yearly to enforce the matching principle

Insurance
Insurance is the undertaking of one party to indemnify another, in exchange for a premium, against a certain eventuality.

Uninsured risks

Bad debt
Changes in fashion
Time lapses between ordering and delivery
New machinery or technology
Different prices at different places

Requirements of an insurance contract
    * Insurable interest
          o The insured must derive a real financial gain from that which he is insuring, or stand to lose if it is
             destroyed or lost.
          o The item must belong to the insured.
          o One person may take out insurance on the life of another if the second party owes the first money.
          o Must be some person or item which can, legally, be insured.
          o The insured must have a legal claim to that which he is insuring.
    * Good faith
          o Uberrimae fidei refers to absolute honesty and must characterise the dealings of both the insurer and the insured.

Shared Services
There is currently a move towards converging and consolidating Finance provisions into shared services within an organization. Rather than an organization having a number of separate Finance departments performing the same tasks from different locations a more centralized version can be created.

Finance of public entities
Public finance describes finance as related to sovereign states and sub-national entities (states/provinces, counties, municipalities, etc.) and related public entities (e.g. school districts) or agencies. It is concerned with:

    * Identification of required expenditure of a public sector entity
    * Source(s) of that entity's revenue
    * The budgeting process
    * Debt issuance (municipal bonds) for public works projects

Financial economics
Financial economics is the branch of economics studying the interrelation of financial variables, such as prices, interest rates and shares, as opposed to those concerning the real economy. Financial economics concentrates on influences of real economic variables on financial ones, in contrast to pure finance.

It studies:
    * Valuation - Determination of the fair value of an asset
          o How risky is the asset? (identification of the asset-appropriate discount rate)
          o What cash flows will it produce? (discounting of relevant cash flows)
          o How does the market price compare to similar assets? (relative valuation)
          o Are the cash flows dependent on some other asset or event? (derivatives, contingent claim valuation)

    * Financial markets and instruments
          o Commodities - topics
          o Stocks - topics
          o Bonds - topics
          o Money market instruments- topics
          o Derivatives - topics

    * Financial institutions and regulation

Financial Econometrics is the branch of Financial Economics that uses econometric techniques to parameterise the relationships.

Financial mathematics
Financial mathematics is a main branch of applied mathematics concerned with the financial markets. Financial mathematics is the study of financial data with the tools of mathematics, mainly statistics. Such data can be movements of securities—stocks and bonds etc.—and their relations. Another large subfield is insurance mathematics. This is also known as quantitative finance, practitioners as Quantitative analysts.

Experimental finance
Experimental finance aims to establish different market settings and environments to observe experimentally and provide a lens through which science can analyze agents' behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanisms, and returns processes. Researchers in experimental finance can study to what extent existing financial economics theory makes valid predictions, and attempt to discover new principles on which such theory can be extended. Research may proceed by conducting trading simulations or by establishing and studying the behaviour of people in artificial competitive market-like settings.

Behavioral finance
Behavioral Finance studies how the psychology of investors or managers affects financial decisions and markets. Behavioral finance has grown over the last few decades to become central to finance.

Behavioral finance includes such topics as:
   1. Empirical studies that demonstrate significant deviations from classical theories.
   2. Models of how psychology affects trading and prices
   3. Forecasting based on these methods.
   4. Studies of experimental asset markets and use of models to forecast experiments.

A strand of behavioral finance has been dubbed Quantitative Behavioral Finance, which uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation. Some of this endeavor has been led by Gunduz Caginalp (Professor of Mathematics and Editor of Journal of Behavioral Finance during 2001-2004) and collaborators including Vernon Smith (2002 Nobel Laureate in Economics), David Porter, Don Balenovich, Vladimira Ilieva, Ahmet Duran). Studies by Jeff Madura, Ray Sturm and others have demonstrated significant behavioral effects in stocks and exchange traded funds. Among other topics, quantitative behavioral finance studies behavioral effects together with the non-classical assumption of the finiteness of assets.

Intangible Asset Finance
Intangible asset finance is the area of finance that deals with intangible assets such as patents, trademarks, goodwill, reputation, etc.