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Business finance


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Published in: Economy & Finance, Business
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Business finance

  1. 1. Business Finance
  2. 2. Meaning Money required for carrying out business activities is called business Finance.
  3. 3. Financial management Financial management is concerned with optimal procurement as well as usage of Finance.
  4. 4. Scope The approach to the scope and functions of financial management is divided for the purpose of exposition into two broad categories:  Traditional approach.  Modern approach.
  5. 5. Traditional Approach The traditional approach, which was popular in the early stage, limited the role of financial management to raising and administering of funds needed by the corporate enterprises to meet their financial needs.
  6. 6. Main limitations of Traditional Approach  Ignored routine problems.  Ignored finance manager’s viewpoint.  Ignored non-corporate enterprise.  No Emphasis on allocation of funds.
  7. 7. Modern Approach According to modern approach the term financial management provides a conceptual and analytical framework for financial decision-making.
  8. 8. Major decisions The financial management can be further classified into three major decisions:  The financing decision.  The investment decision.  The dividend decision.
  9. 9. Financial Decisions Investment Decision Dividend Decision Financing Decision Capital Budgeting Cost of capitalWorking Capital Management Capital Structure
  10. 10. Investment Decisions  These decisions relate to how the firm’s funds are invested in different assets so that they are able to earn the highest possible return for their investors.
  11. 11. Factors Affecting  Cash flows of the project.  The rate of return.  The investment criteria involved
  12. 12. Financing Decisions  This is about the quantum of finance to be raised from various long-term sources.  The main sources of funds are shareholders funds and borrowed funds.
  13. 13. Factors Affecting  Cost  Risk  Floatation costs.  Cash flow position of the business
  14. 14. Dividend Decision  Dividend is that portion of profits, which is distributed to shareholders.  The decision made here is how much of the profit is to be distributed to the shareholders and how much of it should be retained to meet the investment requirements.
  15. 15. Factors Affecting  Earnings.  Stability of earnings.  Stability of dividend.  Growth oppurtunities.
  16. 16. Objectives Efficient financial management requires the existence of some objectives which are as follows:  Profit maximisation.  Wealth maximisation.
  17. 17. Financial planning Financial planning is essentially preparation of a financial blueprint of an organisation's future operations.
  18. 18. Importance  It tries to forecast what will happen in future under different business situations.  It helps in avoiding business shocks and uncertainties.  It helps in co-ordinating various business functions.
  19. 19. Fixed capital  Fixed capital refers to investment in long- term assets.  It affects the growth, profitability and risk of the business in the long run.
  20. 20. Importance  Long-term growth and efficiency.  Large amount of funds involved.  Risk involved.  Irreversible decisions.
  21. 21. Factors affecting  Nature of business.  Scale of operations.  Choice of technique.  Technology upgradation
  22. 22. Working capital  Working capital are the investments which facilitate smooth day-to-day operations of a business.  Working capital is usually more liquid, but contribute less to the profits than fixed assets
  23. 23. Factors Affecting  Nature of business.  Scale of operations.  Business cycle.  Operating efficiency.
  24. 24. Types of business finance  Finance used in business is of following kinds:  long-term finance.  Medium-term finance.  Short-term finance
  25. 25. Instruments of finance  A business form can raise funds from two main sources:  owned funds.  Borrowed funds.
  26. 26. shares Issue of shares is the most important source of raising long term finance
  27. 27. Types of shares  There are two types of shares.  Equity shares.  Preference shares
  28. 28. Retained profits  Retained profits refer to the profits which have not been distributed as dividends, but have been For use in business.  Retained profits are also known as reserves or surplus
  29. 29. Debentures A debenture is a document or certificate issued by a company under its seal as an acknowledgement of its debt
  30. 30. Institutional Finance Loan or equity capital provided by a financial institution, instead of by one or more individual.
  31. 31. Public Deposits Public deposits were to the deposits received by a company from the public as loan debts.
  32. 32. Bank Finance  Find finance refers to the Finance reached from commercial banks.  Commercial banks are an important source of short-term and medium-term finance pro-business