In todays fast-changing environment knowledge

was power and power be it regulatory or supervisory

without knowledge was a subject of ridicule.
Dr.Y.V.Reddy
Introduction of Finance
Dr. Hari Prapan Sharma
Finance

Finance is the life-blood of business. Without

finance neither any business can be started
nor successfully run.
Finance is the managerial activity which is
concerned with planning and controlling of
the firms Financial Resources.
As an academic discipline, the study of
finance can be made in five ways:
(i) Public Finance

Central government, State government and

Local government-all use finances which
are obtained from various sources and
which are used according to predetermined
policies and procedures. Government
raises and uses finances for attaining the
objective of maximum social advantage.
(ii) Securities and Investment
analysis
Buying and selling of shares, debentures
and other securities require such analytical
tools and techniques which are based on
special skills. Thus, security analysis and
investment analysis also form the separate
branch of study in which an investor
deeply studies the problems regarding the
use of finances.
 (iii) International Finance

Individual, business organizations and

government have to face special financial
problems, when money is used at international
level in transacting business activities. Each
country has its own currency. For purchasing
the goods/commodities from another country,
the business enterprises/individuals have to
convert their own currency into currencies of
another country.
(iv) Institutional Finance

Economic structure of almost each country

comprises of financial institutions like
banks, insurance companies, credit
institutions and other special financial
institutions. These institutions mobilise the
savings of the individuals and channelise
them for efficient investments in the
various sectors of the economy.
(v)Financial Management

This aspect of finance has been traditionally known

as 'Business Finance' and 'Corporation Finance'.
Business concerns are all the time facing a lot of
problems for searching the optimum method of
raising and utilising the amount of fund needed for
operating their economic activities. A number of
techniques and tools have been which business
concern may raise funds at minimum cost and may
invest in projects assuring maximum returns. At
present, all such techniques and tools are studied in a
separate subject known as 'Financial Management'.
BUSINESS FINANCE AND
FINANCE FUNCTIONS
In order to understand the comprehensive
meaning of the word 'Business Finance', it
is necessary to explain the meaning of
'Business' and 'Finance' separately and
individually. Business signifies all those
human endeavours (activities) which are
performed for the carrying out of profit.
Cont..

F. C. Hooper opines that business signifies

the whole area of commerce and industry,
basic industries, technical and manufacturing
industries and ancillary services-distribution
network, banking, insurance, transportation,
etc., which serve the total business world and
are its integral parts.
Cont..

Finance often signifies the money and it

studies as how do an individual, businessman,
investor, financial, and also government
manage and operate the finance, i.e.,money.
After understanding, the meaning of 'business'
and 'finance', we can define the business
finance. Business Finance may be defined as a
process relating to raising of capital and using
it in business activities.
Cont..

According to Osborn, R. C., "The finance

function is the process of acquiring and
utilising funds by a business."
According to Bonneville and Dewey,
"Financing consists in raising, providing,
managing of all money, capital or funds of
any kind to be used in connection with the
business."
Classification of finance function

Financial Decisions or Finance Functions

are closely inter-connected. All decisions
mostly involve finance. When a decision
involves finance, it is a financial decision in a
business firm. In all the following financial
areas of decision-making, the role of finance
manager is vital. We can classify the finance
functions or financial decisions into four
major groups:
Cont..

(A) Investment Decision or Long-term

Asset mix decision
(B) Finance Decision or Capital mix
decision
(C) Liquidity Decision or Short-term asset
mix decision
(D) Dividend Decision or Profit allocation
decision
(A) Investment Decision
Investment decisions relate to the total
amount of assets to be held and their
composition in the form of fixed and
current assets. Both the factors influence
the risk the organisation is exposed to.
The more important aspect is how the
investors perceive the risk. The
investment decisions result in purchase of
assets.
 (B) Finance Decision

Finance decision is concerned with the mix or

composition of the sources of raising the funds
required by the firm. In other words, it is related
to the pattern of financing. In finance decision,
the finance manager is required to determine the
proportion of equity and debt, which is known as
capital structure. There are two main sources of
funds, shareholders funds (variable in the form
of dividend) and borrowed funds (fixed interest-
bearing).
(C) Liquidity Decision

Liquidity decision is concerned with the

management of current assets. Basically, this is
Working Capital Management. Working Capital
Management is concerned with the management
of current assets. It is concerned with short-term
survival. A proper balance must be maintained
between liquidity and profitability of the firm.
This is the key area where finance manager has to
play significant role. The strategy is in ensuring a
trade-off between liquidity and profitability.
(D) Dividend Decision

Dividend decision is concerned with the amount

of profits to be distributed and retained in the
firm.
Which course should be followed dividend or
retention? Normally, companies distribute certain
amount in the form of dividend, in a stable
manner, to meet the expectations of
shareholders and balance is retained within the
organisation for expansion.
Cont..

There is no ready-made answer, how

much is to be distributed and what
portion is to be retained. Retention of profit
is related to
Reinvestment opportunities available to the
firm.
Alternative rate of return available to equity
shareholders, if they invest themselves.
Thank
You
for your kind attention.