BUSINESS

FINANCE

finance applies to all financial activities of agriculture, indust

rance . The scope of business finance includes commercial fi
nce, property finance, corporate finance and even agricultur
nce refers to corporation finance. The term corporation
nancial management.

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Financial Management deals with
procurement of funds and their efective
utilization in business.
Financial Management is concerned with
efective use of an important economic
resource, namely capital funds.

Kuchal S.C:
Ezra
Solomon:

DEFINITION OF FINANCIAL MANAGEMENT

FUNCTION OF FINANCIAL MANAGEMENT

Routine Function

Executive Functions

1. Forecasting Financial Requirements.

Keeping And Reporting.
2. Deciding Sources Of Funds.
tion Of Various Financial Statements.
3. Investment Decisions.
anning.
4. Dividend Policy.
Management.
5. Checking And Analysis Of Financial
ng Information To Board Of Directors
performance.
ent Financial Position For Making
6. Advising Board Of Directors.
ns Of Purchases, Marketing, Pricing. Etc.

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OBJECTIVES OF FINANCIAL MANAGEMENT

1. Difficult for business to survive without

profit.
Profit Maximization 2. Profit is a tool of measuring the success
of business firm.
3. High level profit results in better returns
to shareholder.
4. High level profit can generate funds.
5. Profit maximization has to be achieved
1. Wealth maximization owners
Wealth Maximization for
2. Also known
as value maximization.
socio-economic
welfare.

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DEFINITION OF FINANCIAL PLANNING.

J . H . Boneville: The financial plan of a

corporation has tow fold aspects,
It refers not only to capital structure of the
corporation but also to the financial policies
which corporation has adopted or intends to
adopt.

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IMPORTANCE OF FINANCIAL PLANNING.

Futuristic
Integration

Decision Making

Elimination Of Waste

Importance Of
Financial Planning.
Coordination

Communication

Dynamism

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Weston
and
Bringha
m
R.H.
Wessel

The long term sources of funds employed

in a business enterprise.

John H.
Hampto
n

A firms capital structure is the relation

between the debt and equity securities
that makes up the firms financing of its
assets.

Capital structure is the permanent

financing of firm represented by long term
debt, preferred stock and net worth.

DEIFICATION CAPITAL STRUCTURE

COMPONENTS/ PARTS OF CAPITAL STRUCTURE

1.Equity Share Capital

2.Preference Share Capital.
3.Retained Earnings
4.Borrowed Capital.
1.Debentures
2.Term Loan.

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FACTORS INFLUENCING CAPITAL STRUCTURE.

Factors

Internal factors

1. Requirement Of
Capital.
2. Size & Name Of
Business
3. Growth Of
Business Firm
4. Adequate &
Stable Earning
5. Cash Position
6. Period Of
Finance
7. Future Plan
8. Trading On

External factors

1.
2.
3.
4.
5.
6.
7.
8.

Market Conditions
Attitude Of Investors
Cost Of Capital
Government Regulations
Attitude Of Financial Institutions
Rate Of Interest
Taxation
Competition

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FIXED CAPITAL

xed capital also circulates, except that the circulation time is

Nature of business
Size of business
Factors afecting
fixed capital
requirement

Growth & expansion of business

Stage of development of business
Business cycle

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WORKING CAPITAL

ergh : The excess of current assets over current liabilities.

aker & Mallot: Working Capital means current assets.

The sum of current assets is working capital of a business.

Brigham: Working capital refers to a firms investment in sh

sh, short term securities.

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FACTORS AFFECTING THE REQUIREMENT OF WORKING CAPITAL

Nature of business
Size of business
Volume of sale
Business cycle
Factors afecting
working capital
requirement

Production cycle
Term of purchase and
sale control
Credit
Growth and expansion
Management ability
External factors
Requirement of cash
Seasonal fluctuation

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KEY TERMS
Business finance : Corporation finance or
financial management
Financial management : Management of
business funds.
Forecasting of finance : Budgeting financial needs.
Profit maximization: Principle of business that
aims at making
maximization profit.
Wealth maximization : The maximization of
market prices of shares.
Financial planning : Advance programming of
financial plan.
Capital structure : Composition of capital.
Trading on equity : Use of borrowed funds for
financing business.
Capital gearing
: Ratio between debt capital &

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