BUSINESS FINANCE

Finance – broad term that describes two related activities:

1. the study of how money is managed
2. the actual process of acquiring needed funds

Who needs funds? All individuals, businesses and the government.

Individuals – personal finance – provision for retirement expenses, invest while working for retirement
expenses
Business – corporate finance – how to raise additional funds through bond issue and stock offering
Government – public finance- managing money of day to day activities and social responsibilities and its
goal is attaining an equitable distribution of income for its citizens and creating policies that lead to
stable income

Financial Activities - firm’s one of the most important and complex activities of a firm. In order to take
care of these activities, a financial manager performs all the required financial activities.

FUNCTIONS OF FINANCIAL MANAGER

1. Raising Funds – In order to meet the obligation of the business it’s important to have enough
cash and liquidity. A firm can raise a fund by way of EQUITY and DEBT.
- It is the responsibility of the financial manager to decide the ration between
debt and equity and maintain good balance between equity and debt.
2. Allocation of funds – allocated in such manner that they are optimally used. In allocation of
funds the financial manager needs to consider;
a. Size of the firm and its growth capability
b. Status of assets whether they are long term or short term
c. Mode by which funds are raised
3. Profit Planning – one of the prime functions of any business organization.
- important for survival and sustenance of any organization
- refers to the proper usage of the profit generated by the firm

FACTORS THAT CAN INCREASE PROFIT

1. pricing
2. competition
3. state of the company
4. individual competition
5. mechanism of demand and supply
6. cost and output
Fixed Cost - incurred by the use of fixed factors of production such as land and machinery
Opportunity cost – calculated in order to replace those factors of production which has gone
through wear and tear.

4. Understanding Capital Markets – shares of company are traded on stock exchange and there is
continuous sale and purchase of securities.(tradable financial asset of any kind.)