Professional Documents
Culture Documents
Financial Management
This means that the finance function is solely concerned with the
acquisition (or procurement) of short- term and long-term funds.
ADVERTISEMENTS:
However, in recent years, the coverage of the term ‘finance function’ has
been widened to include the instruments, institutions and practices
through which funds are obtained. So, the finance function covers the legal
and accounting relationship between a company and its source and uses of
funds.
But such a definition is too narrow and is not of much practical use. No
doubt, the finance function is much broader than mere procurement of
short-term and long-term funds so that a firm’s working capital and fixed
capital needs can be met.
ADVERTISEMENTS:
Another extreme view is that finance is concerned with cash. This definition
is much too broad and thus is not really meaningful.
The third view — based on a compromise between the two — is more useful
for practical purposes. This definition treats the finance function as the
procurement of funds and their effective utilisation in business. The finance
manager takes all decisions that relate to funds which can be obtained as
also the best way of financing an investment such as the installation of a
new machinery inside the factory-or office building.
ADVERTISEMENTS:
In the next step, the finance manager has to raise necessary funds to meet
the company’s need for fixed and working capital. Then, in the third step,
he has to put the acquired funds into effective uses.
ADVERTISEMENTS:
ADVERTISEMENTS:
3. Raising funds;
4. Allocation of funds;
The last function is very important. Through financial control the finance
manager tries to bring performance closer to the targets.
ADVERTISEMENTS:
Interrelationship:
It may be noted that all the six functions are interrelated. This means that a
change in decision with respect to any one of the functions will call for a
change in decision relating to some or all other functions.
v