FINANCE FUNCTION Definition:The finance function is the process of acquiring and utilising funds of a business. by R.C.

.Osborn Financing consists of the raising, providing, managing of all the money, capital or funds of any kind to be used in connection with the business. -- by Bonneville & Dewey SCOPE OF FINANCE FUNCTION According to modern approach, the scope of finance function is concerned with the following three types of decisions. Financing Decisions :Decisions basically concerned with the process of acquiring funds. May be from own sources (Equity Capital) or loan sources ( Debt Capital). These decisions are concerned with answers to the following questions. What should be the amount of funds to be raised? What should be the mix of equity and debt capital?

Investment Decisions:Concerned with utilisation of funds. These decisions relate to the selection of the assets in which funds should be invested. From the asset perspective these decisions are Capital Budgetting decisions Working Capital Management Dividend Policy Decisions:Related to the decisions regarding proportion of dividends & profits retained in the business for future expansion. SIGNIFICANCE OF FINANCE FUNCTION

Other than finance, every business generally operates in the other main functional areas Production, Marketing and Personnel. These functions are closely related to finance function because funds are required to execute these functions. E.g. to produce good quality of finished goods, business needs good infrastructural facilities like building, plant& machinery etc. To regulate the flow of production inputs like quality raw material, WIP, consumable stores, quality control equipments, maintenance facilities are required. All these need investments in terms of fixed capital & working capital which is the area of finance function.

To market the finished goods to guarantee regular flow of goods in the market, it may be required to have good distribution systems which may call for investment in terms of fixed assets or labour force. All these activities need the investments to be made either in terms of fixed capital and/or working capital which is the area of finance function. The personnel function deals with the availability of human resource at proper time, training them properly and fixing their job responsibilities. All these activities need funds to pay salaries, wages and other facilities. Thus, all the functions or activities of the business are ultimately related to finance. The success of the business depends on how best all these functions can be co-ordinated with finance function.

CONCEPT OF FINANCE

The concept of Finance is not a static one but it is more dynamic in nature. It has changed with times and according to circumstances. The important approaches could be explained as below. According to first approach, the term finance was interpreted to mean procurement of funds by corporate enterprises to meet their financing needs. According to second approach finance is concerned with cash. As all the business transactions are expressed in terms of cash, it is concerned with every activity of the business. This approach is concerned with all the functional areas of the business i.e. Production, Marketing, Purchasing, HR administration, R&D. The third approach interprets the term finance as being concerned with procurement of funds and proper application of the funds. This approach is more balanced and acceptable universally as it gives equal weightage to procurement and utilisation of funds as well. This approach is called Managerial Approach to the term finance.

CORPORATE FINANCE Corporation :- Corporations are joint stock companies which are public limited. Corporations are owned by its stockholders who elect a board of directors. The separation of ownership and management gives corporations perpetual character. Finance function of corporations can broadly be divided into two categories. Finance Control Function Treasury Function

Accounting & Costing 1. Receivables Management Annual Reporting 2. Taxes & Insurance Internal Auditing 3. Cost Management Budgeting 4. Securities Statistics & Finance 5. Banking Relations Record Keeping 6. Real Estate 7. Dividend Distributions

ROLE OF A FINANCE EXECUTIVE :Finance function may not be a specialized function in small business organisations. But in large corporate houses it is a specialized task and is centralised. Usually the Board Of Directors have the authority to take the financial policy decisions. Within this policy framework, the delegation of powers is made to the executive committee comprising of CFO, Managing Director and one or two directors. Only routine financial matters are delegated to lower level officers. Reasons for finance function being highly centralised are

 Financial decisions are the most crucial ones on which survival or failure of the organisation depends Financial decisions affects the solvency position of the organisation and a wrong decision in this area may lead to crisis. The organisation may gain economies of centralisation in the form of reduced cost of raising funds, acquisition of fixed assets at the competitive prices

DUTIES AND RESPONSIBILITIES OF FINANCE EXECUTIVE Recurring Duties 1. Deciding the Financial needs 2. Raising the funds required 3. Allocation of funds -- Fixed Asset Management -- Working Capital Management 4. Allocation of income 5. Control of Funds 6. Evaluation of Performance 7. Corporate Taxation 8. Other Duties like internal audit, statutory & tax audit, safeguarding securities & assets by properly insuring them. Non-recurring Duties These duties include preparation of financial plan at the time of

company promotion, financial readjustments in times of liquidity crisis, valuation of the enterprise at the time of merger & acquisition.

Non-recurring Duties in the Field of Finance 1. Business Finance 2. International Finance 3. Public Finance 4. Private Finance Non-recurring Duties in other fields:1. Production 2. Marketing 3. Personnel Implications of Forms of Business Organisations: Sole Proprietorship Partnership

HUF Businesses Co-operatives Joint Stock Companies Public Sector Enterprises

FINANCIAL SYSTEM A financial system consists of different financial assets, financial intermediaries, financial market, borrowers & investors. An efficient financial system is of critical importance for the economic development of any country. Financial Market :- A financial market may be defined as the market of financial assets i.e. the market in which financial assets are transacted. Issue of shares & debentures by a company, issue of mutual fund units, working capital loans by commercial banks, long term financial assistance by financial institutions which are undertaken in financial markets. The financial market in India is divided into three partsMoney Market :- It is a market for short term debt transactions. The formal money market is basically characterized by presence of RBI, DFHI, Mutual funds, NBFCs, commercial banks, financial institutions etc. These participants transact in treasury bills, inter-bank call money, commercial bills of exchange, inter-corporate deposits etc. Capital Market :- It is a market for long term financial assets such as

shares, bonds, debentures, mutual fund units.

The subsequent sale or purchase of these securities is undertaken in secondary market. This market is basically provided by the stock exchanges. Government Securities Market :- It is a market in which the securities/loans of central government, state government & other government authorities are traded. These securities, primarily in the form of government loans, also known as Gilt-edged securities. The main participants in this market are the commercial banks, provident funds. Financial Assets :-Financial assets represent a financial claim of the holder over the issuer. Financial Intermediaries :- These are financial institutions and are key players in the financial system. Financial intermediaries play a role of establishing a link between the debtors and the creditors in the financial system. They are classified as-All India level financial institutions such as IDBI, SIDBI -State level financial institutions such as MSFC -Commercial Banks -Insurance companies

- The mutual funds - The NBFC including leasing & hire purchase companies - The agricultural finance companies including NABARD - Other institutions such as chit funds Regulatory Framework :Regulatory framework for controlling and supervising the financial system in India is a complex network of legislations, guidelines, notifications. The main elements of regulatory framework are- The Company Act 1956 - The Securities Contracts (Regulation) Act, 1956 - The Income Tax Act, 1961 - The Banking Regulation Act, 1949 - Numerous Guidelines issued by SEBI and the RBI - Credit Policy announced by RBI

SIGNIFICANCE OF FINANCIAL SYSTEM An efficient financial system regulating the various institutions can lead to the economic development of the country. The advantages of good financial system are as follows. Enables investors to make their investments to their expectations, which are constantly changing. The process of market evaluation, allocates the available funds for investment to the most efficient firms who can apply them most profitably and productively. Mobilises the investible surplus and provides expert services in bringing about the flow of funds into securities of business establishments.

Acts as a link between those who save and those who are interested in investing these savings. Ensures the transparency of transactions of buying and selling the securities. Guarantees the protection of funds invested by the small investors. Keeps a watch over the company management. Encourages acceleration in the rate of capital formation and thus acts as a catalyst in the wealth creation.