July -2018

PROF. V. RAMACHANDRAN
FACULTY- FINANCE,
SIESCOMS,NERUL,NAVI MUMBAI

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 It is Life Blood of any Business
Enterprise
 Lays the Basic Foundation for all
Economic Activities
 Holds the Master Key for all
Manufacturing and Merchandizing
Activity
 Efficiency of Business of any size has
to be closely linked to Management
of Finance
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 ◦ What customer wants?

◦ What will he pay for it?

◦ What will it cost to provide it?

 Costly mistakes can be avoided with the

above vital information

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 It is Life Blood of any Business
Enterprise
 Lays the Basic Foundation for all
Economic Activities
 Holds the Master Key for all
Manufacturing and Merchandizing
Activity
 Efficiency of Business of any size has
to be closely linked to Management
of Finance
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Mainly involves:
 Planning : The requirement of funds
 Raising of funds: Sources of funds
 Use of funds: Effective utilization for
achieving overall objectives.
 Management & Administering of
Financial Affairs

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Traditional Approach
 Core Area
 Maintenance of Liquidity
◦ Adequate cash to meet it’s obligation at all
times.
 Maximization of Profitability

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 Other objectives
◦ Ensuring fair returns to share holders
◦ Building up reserves for growth and
expansion
◦ Maximization of operational efficiency by
effective use of finance.
◦ Ensuring Financial discipline in the
organization.

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Traditional approach
A) Arrangement of funds from
 Financial Institutions.
 Financial Instruments (Shares, Bonds etc)

B) Over seeing Legal and Accounting

Aspects between corporation and its
sources

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 Approach criticized for
 Being vague – short run, long run, rate of
profit, Ignores – timings
 Overlooks quality aspects of future activities.
◦ Some firms accept lower profit to gain
stability, others use part of profits for socially
productive purposes.
◦ Profit maximization at the cost of social or
moral obligation is short sighted and against
pragmatic approach

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 Traditional
approach was
abandoned:-
Due to inherent deficiencies:-
◦ Outsider looking in Approach
◦ Over looked routine problems
◦ Ignored non-corporate enterprises.
◦ Ignored working capital financing.
◦ In adequate emphasis on allocation of
funds.

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Due to Environmental Changes
 Technological development
 Widened Market operations
 Strong Corporate Structure
 Stiff Business Competition
 Advent of Computers
 Computers Assisted operational
research Techniques
Capital Budgeting techniques

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Modern Approach
(Core Area)
Analytical way to look at
 Fund requirements Decision
 Estimate of Fixed & Working capital
 Forecasting level of operations

 Financing decision
 Identify sources & timing of Financing
 Proper mix Fixed & non Fixed cost bearing securities

 Investment decision
 Capital (evaluating investment proposals, fixing priorities, capital
budgeting)
 Current Assets( Inventory, Credit policies)

 Dividend Decision

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Modern Approach (Others)
 To ensure supply of Finance to all
Parts of Organization
 Evaluation of Financial Performance
 Negotiation with banks/FI’s and other
suppliers of credit.
 To keep tack of stock exchange
behavior.

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 Controlling Functions  Treasury Functions
 Planning and control Provision of Finance
of operations
 Reporting and Investor Relations
interpreting Short term Financing
 Tax planning and Banking and Custody
administration Credit and
 Govt. Reporting collections
 Protection of assets
Investments
 Economic appraisal
Insurance

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 Marketing- Finance
Significant impact on profitability of firm.
Impact of credit extended to customers
Eagerness to meet sales target with
liberal credit terms
Cost of maintaining large inventory
Product Pricing
Sales promotion and advertisement
Choice of product mix and
Distribution policy

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 Controls major part of investment
in
◦ Equipment, material and man power
◦ Effective use of equipment and man
power
◦ Inventory of working process, stores
and spares
◦ Cost of output
◦ Make, Buy or Lease decisions.

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 Interested in ensuring achievement of
overall objectives
◦ Use of financial statements as
means for information and
effectiveness
◦ Strong linkage with finance for strategic
planning, management control and other
relevant basic inputs for effective and
efficient management.

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