Finance By: Noor ul hadi (Lecturer)Govt College of Management Sciences Peshawar
What is Finance1. Finance is the art of to raise fund and best allocation or utilization to achieve organizational goal.2. A branch of economics concerned with resource allocation as well as resource management, acquisition and investment. Simply, finance deals with matters related to money and the markets.
Finance vs FinancingFinance: Finance is a branch of economics that deals with the management of funds, financial resources and other assets. In broader terms, finance is raising or investing money either as equity or debt. Financing: The process or means of acquiring capital necessary to conduct a business activity. Two of the most common forms of financing are debt financing and equity financing.
FINANCE (Functions)F:- Financial Planning/ ForecastingI:- Investment DecisionN:- Negotiation and ConsultationA:- Allocation of FundsN:- Net Result Estimation or Standard SettingC:- Control of Financial ResourcesE:- Evaluation & Revision
F:- Financial Planning/ Forecastinga. To determine the required amount of capitalb. To decide the sources of capital (fund) a. Internal Sources (Owner Capital) b. External Sources (Debt Capital/Leverage Capitalc. To Finalize Capital Structure (Combination of own & Debt capital ratio)d. To Decide investment Mix– utilization of D/E ratio.
I:- Investment DecisionSelection of Assets to be acquired for the business.a. Current Assets (Working Capital Management) - Cash Management - A/R Management - Inventory Managementa. Fixed Assets (Capital Budgeting)Capital Budgeting is to acquired long run Assets.
N:- Negotiation and Consultation• Negotiation ad consultation with other departmental heads so as to take positive investment decisionMBO “Management by Objective.Consultative and Participative Management.
A:- Allocation of FundsAllocation of Fund among the selected Assets.• Investment in Capital Market• Investment in Money Market.
N:- Net Result Estimation or Standard Setting• Standards: – Output Standard/Quantity Standard. – Cost Standard. – Quality Standard
C:- Control of Financial Resources• Actual, Standard and Budgeting – Minimizing the Variances to retain favorable variances. – Stock Control. – Labor Cost Control • Time In, Time Out, Time booked( time in work operation)
E:- Evaluation & Revision• Change required for improvement and value of the firm.• Change required for decision.• The evaluation of things with standard.