F.W.Paish –“In a modern money using economy finance may defined as the provision of money at the time it is wanted .”—- Procurement View .
John J Hampton—“The term finance can be defined as the management of the flows of money through an organization, whether it will be a corporation , school, bank or a govt. agency.”—Custodian Function.
Howard and Upton —“Finance may be defined as that administrative area or set of administrative functions in an organization which relate with the arrangement of cash and credit so that the organization may have the means to carry out its objectives as satisfactorily as possible.”
Functions of Finance — three major decisions
1) Investment Decision—Capital Budgeting.
2) Financing Decision—Procuring Owned & Borrowed Capital
3) Dividend Decision— Profits-> Dividends and Retained Earnings
Scope of FM
1) Estimating requirements of funds
2) Decision regarding capital structure
3) Investment Decision
4) Dividend Decision
5) Cash Mgt.
6) Evaluation of Financial Performance
7) Negotiation for additional funds
Objectives/Goals of FM
Fundamental objective is WEALTH MAXIMISATION.
Objectives which lead to Wealth Maximisation
a) Proper Utilisation of Funds
b) Maximisation of ROI
d) Achieving BEP
e) Managing Cash Flows
f) Minimum Profits—Peter Drucker—“Profit is a condition of survival.”
g) Coordination amongst different depts.-Prodcn., Sales, Finanace etc
h) Good Image of Orgn. in market & Public
Two Approaches for attaining Objectives/Goals of FM
A) Profit Maximisation Approach
B) Wealth Maximisation Approach
Changing Role of Finance Managers
Traditional role of Finance Managers was concerned only with raising funds for the organization. In the Modern times role of FM includes
a) Determining the requirement of funds for the orgn.
b) Determining Capital Structure –Owned Funds and Borrowed funds
c) Raising Funds at minimum cost and restrictive conditions.
d) Optimum utilization of funds
e) Financial solvency to be ensured at all cost.
f) Allocating the funds to different departments
g) Allocating funds between Fixed assets and Working Capital
Types of Risks (FM has to deal with)
1) Credit /Default risk- possibility that debtor will default
2) Interest Rate risk- change in bank deposit/loan rates
3) Business risk- failure of business due to controllable/uncontrollable factors
4) Inflation risk- Decrase in purchasing of money
5) Industry risk- failure of the related industry
6) Liquidity risk- inability to convert investment into cash
7) Systematic/undiversifiable risk- arising from external uncontrollable factors like political,economic etc.
8) Unsystematic/diversifiable risk- arising from internal controllable factors like plant breakdown/labour strike etc.
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