Functions of Finance

• Life blood of business (passive role except main

line for banks & financial institutions)
• To make money, one requires money (example
of a fruit vendor)
• Lubricant to keep engine moving (Reliance)
• Growth pangs (liquidity crisis despite profitability
eg JM)
• Examples of Subhiksha Stores, Lehman Bros,
CitiBank, General Motors
Corporate Finance Overview
-Business activity concerned with planning,
raising, investing & monitoring funds to
achieve financial objectives of a corporate
entity

Corporate finance is an area of finance

dealing with the financial decisions
corporations make and the tools and
analysis used to make these decisions. The
primary goal of corporate finance is to
maximize corporate value while managing
the firm's financial risks.
 Finance Functions
• Capital Budgeting- long term investments
• Sourcing-capital structure & dividend pay-
out
• Day to day cash management- working
(say moving…) capital & minimum idle
cash

Question: Is core working capital short term

or long term for a going concern ?
 Role of Finance Manager
• Management & custody of assets; insurance
• Cash flow management (liquid cash deployment)
• Negotiations with bankers & institutions
• Monitoring & reporting periodically financial
performance (mirrored in MIS reports) &
suggesting remedial measures; Cadbury’s
example
• Cost control; activity base costing
• Tax planning
• Monitoring stock prices and external events
• No longer only a bean counter
 Role of Finance Manager (contd.)
• Ever changing
• Computerisation (no longer Mehtaji busy
tallying Trial Balance at B. Dyeing in 70s)
 Qualities of a Finance Manager
• Vision & foresight
• Out of box thinking
• Personality
• Communication & presentation skills
• Initiative
• Intelligent & smart
• Managerial skills
• Sound technical knowledge
• Confidence
 Relationship between Finance &
Other Functions
• Class to form groups : Production {1-7},
Engineering Services {8-14}, Sales &
Marketing {15-21}, Corporate {22-28},
HR{29-35},IT{36-42}, Admin{43-49},
Purchase{50-56}
• Present the two way relationship (one
presenting from Finance angle and
another from ,say, Production angle)
 Financial Management Covers….
• Capital investment decisions; Maximise ROI= (NP x Sales)
( Sales CE )
• Capital structure & raising of funds
• Utilisation of funds
• Cash flow management
• Working capital management
• Controlling risk & survival
• Goodwill & image building (helps better rating by
bankers & suppliers, employee retention
• Profit vs Wealth Maximisation………
 Profit vs Wealth Maximisation
• Market capitalisation = no. of shares x
market price per share
• What do investors look forward to :
3. Appreciation in share price
4. Stability in earning
5. Dividend
6. Transparency (Enron & Satyam vs
Infosys)
 Business Risk
• Demand
• Sales Price
• Input cost
• Ability to hike output price to input rise
• Develop new products timely & successfully
• Foreign (country & currency)
• Fixed cost (operating leverage)
• Labour
• Natural calamity (fire, quake, riot, flood)
• Technology obsolescence
• Credit or default risk
 Finance Risk
• Financial leverage (high debt :equity)
• Interest rate
• Inflation
• Liquidity
• Bankruptcy
All finance & business risks can be classified into
diversifiable & non diversifiable.
Steps to minimise risks and avoid intolerable risks
 New Role of CFO
• Corporate Communication (investor
guidance, transparency) & Corporate
Governance
• Strategist- quick decisions (Capital
budgeting, financing structure,….)
• Deal Maker (Tata Corus)
• Chief Risk Officer