Finance explained to my mother-in-law. Chapter I – Finance is a bit like football

You see, Lucia, Finance is a bit like football: there are rules and a defined framework that you have to know and respect…

but I can assure you that, all the same, people never manage to get to understand each other!

My goal is not to make you an expert in Fundamental Analysis (I’m not going to explain what Fundamental Analysis is either).

I just want to explain you the principles of Finance based on some simplifications that even if they don’t respect 100% of the academic theory, it’s enough to guide everyday decisions.

So as not to fall into the trap of those unprofitable bogus funds that your banker wants to sell you every year.

Or to know (vaguely) what you’re talking about when you explain to me how you will become rich by opening a restaurant in Alassio.

Finance is aimed at value creation and consists of three areas:

  • Accounting, the aim of which is to provide a true and fair view of the economic and asset situation of the company through compliance with the accounting principles and fiscal and social standards (i.e. the periodic and correct presentation of the company’s earnings, costs, assets held, capital invested and debts in accordance with accounting standards);
  • Treasury, the objective of which is to make available the money needed to keep the business running (and possibly to invest the cash generated in excess);
  • Management control, the objective of which is to measure business performance through financial indicators which, when mixed with qualitative indicators, give life to the KPIs.