Finance Function

By:-Anamika GoswamiPoorvi JoshiRishabh Agrawal

INTRODUCTION

Originally ,the finance function was concerned with the procurement of funds and legalistic matters relating to them. Financial management at this stage concentrated on the description of financial markets, types of securities, and techniques of raising funds. the financial manager was not involved in the process of decision making about critical financial matters.

During the depression of 1930s, the focus of financial management shifted to mergers, reorganizations, financial liquidity etc. Financial management however continued as descriptive subject as a discipline until early 1950s,with major focus on outsider’s view’ rather than insider’s view of finance function. It looked at finance from the point of view of an outsider such as creditors and shareholders, rather than focus on financial decision making. Significant developments took place in the field of financial management during the second half of 1950s.the focus shifted from the outsider’s view of the finance function to the insider’s view. Greater attention was paid to the administrative aspects of financial management such as cash budgeting and forecasting, management of assets, control of expenses etc

Definition of Finance Function

Finance is the life-blood of industrial system, without finance business cannot be run successfully. Sufficient funds are required time is the key to success. In terms of Husband and Dockery "Finance is the agent that directs the flow of economic activity and faciliates its smooth operation.

OBJECTIVES

SCOPE OF FINANCE FUNCTION

APPROACHES TO FINANCE FUNCTION

The Traditional Approach

•Initial stages of its evolution during 1920s & 1930s when the term ‘corporation finance’ was used to describe ‘financial management’.

•The scope of finance function is confined to only procurement of funds needed by a business on most suitable terms.

•The traditional approach to the scope & functions of finance has now been discarded as it suffers from many serious limitations:

1. It is outsider-looking in approach that completely ignores internal decision making as to the proper utilization of funds.

2. It was on procurement of long-term funds. Thus, it ignored the important issue of working capital finance & management.

3. The issue of allocation of funds, which is so important today is completely ignored.

4. It does not lay focus on day to day financial problems of an organization.

Modern Approach

• It views finance function in broader sense.

• It includes both raising of funds as well as their effective utilization under the purview of finance.

• The finance function does not stop only by finding out sources of raising enough funds, their proper utilization is also to be considered.

• So finance function, according to this approach, covers financial planning, raising of funds, allocation of funds, financial control etc.

The modern approach considers the three basic management decisions-

1. Investment decisions,2. Financing decisions3. Dividend decisions within the scope of finance function

AIMS OF FINANCE FUNCTION

THE FINANCE FUNCTION

TREASURER

Financial Planning Analysis

Fund Acquisition

Investment Financing

Cash Management

Investment Decision

Risk Management

CONTROLLER

External Reporting

ManagementInformation

System

Financial&

ManagementAccounting

BudgetPlanningControl

AccountsReceivable

Tax Planning &

Management

BUSINESSFUNCTION OF A

MANUFACTURINGUNDERTAKING

PurchaseFunction

ProductionFunction

DistributionFunction

AccountingFunction

PersonnelFunction

Research&

DevelopmentFunction

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