FinanceBy: Noor ul hadi (Lecturer)

Govt College of Management Sciences Peshawar

What is Finance

1. Finance is the art of to raise fund and best allocation or utilization to achieve organizational goal.

2. A branch of economics concerned with resource allocation as well as resource management, acquisition and investment. Simply, finance deals with matters related to money and the markets.

Finance vs Financing

Finance: Finance is a branch of economics that deals with the management of funds, financial resources and other assets. In broader terms, finance is raising or investing money either as equity or debt.

Financing: The process or means of acquiring capital necessary to conduct a business activity. Two of the most common forms of financing are debt financing and equity financing.

FINANCE (Functions)

F:- Financial Planning/ Forecasting

I:- Investment Decision

N:- Negotiation and Consultation

A:- Allocation of Funds

N:- Net Result Estimation or Standard Setting

C:- Control of Financial Resources

E:- Evaluation & Revision

F:- Financial Planning/ Forecastinga. To determine the required amount of capital

b. To decide the sources of capital (fund)a. Internal Sources (Owner Capital)

b. External Sources (Debt Capital/Leverage Capital

c. To Finalize Capital Structure (Combination of own & Debt capital ratio)

d. To Decide investment Mix– utilization of D/E ratio.

I:- Investment Decision

Selection of Assets to be acquired for the business.

a. Current Assets (Working Capital Management)- Cash Management- A/R Management- Inventory Management

b. Fixed Assets (Capital Budgeting)

Capital Budgeting is to acquired long run Assets.

N:- Negotiation and Consultation

• Negotiation ad consultation with other departmental heads so as to take positive investment decision

MBO “Management by Objective.

Consultative and Participative Management.

A:- Allocation of Funds

Allocation of Fund among the selected Assets.

• Investment in Capital Market

• Investment in Money Market.

N:- Net Result Estimation or Standard Setting

• Standards:– Output Standard/Quantity Standard.– Cost Standard.– Quality Standard

C:- Control of Financial Resources

• Actual, Standard and Budgeting– Minimizing the Variances to retain favorable

variances.– Stock Control.– Labor Cost Control

• Time In, Time Out, Time booked( time in work operation)

E:- Evaluation & Revision

• Change required for improvement and value of the firm.

• Change required for decision.

• The evaluation of things with standard.