IV-The steps of finance

1. Capital budgeting:

Capital budgeting is the decision regarding the choice of which investments are to be made with the
resources that have been brought into the business. The two most famous indicators of capital
budgeting are:

 IRR (internal rate of return): a measure of investment. When the IRR exceeds the required
which is equal to the cost of the funds invested then the investment should be made.

 NPV (net present value): is a method for financial evaluation of long-term projects, All
projects with a positive NPV are profitable, however this does not necessarily mean that they
should be undertaken. Second step is:

2. Financing:

Financing is the decision of which resources or funds are to be brought into the business. The goal of
the financing decision is to obtain all the resources necessary, to make all the investments that yield
a return in excess of the cost of the funds invested.

 The first external source of finance is debt, which includes loans from banks. The debt
creditors take less risk.

 The second external source of finance is equity, which includes common stock and
preferred stock. The equity investors in the business take more business risk and may not
receive payment until the creditors are repaid and the management of the business decides
to distribute funds back to the investors. The last step is:

3. Dividend policy:

Dividend policy is the decision regarding funds to be distributed or returned to the equity investors.
The aim of this decision is to retain the resources in the business that are required to run the
business

 In theory: management should return all resources that cannot be invested in the business.

 In practice: dividends are often changed to certain levels.

For example, dividends can be maintained:

 To moderate levels -- to demonstrate stability

 To low levels -- to demonstrate the growth opportunities for the business

 To higher levels -- to demonstrate the strong financial and the structure for the business

That brings me to the end of ours presentation is:

V- Importance of finance:
Before the industrial revolution finance was not considered so important for business organizations.
Because methods of productions were very simple, labor was more important than capital and
finance at that time. But after industrial revolution, when methods of productions were introduced
the finance got much importance. Nowadays finance is considered as the life blood of every business.
Money is a universal lubricant for any enterprise, man and machine work. The factors due to which
finance is important are:

1. Importance for Business:

Finance is considered as the life blood of every business because the success of each business
depend mostly .Upon finance, many business firms fail or bankrupt because of inadequacy of finance.
Without efficient financial planning anyone business can achieve the desired goals. At the most we
need money for the payment of different things. Therefore we can say that the promotion of any
business organization depends upon the determination and condition of adequate finance.

The second factor finance is:

1. Importance for Distribution of Economic activities:

According to a saying: “To have money to make money”.

For getting more and more return we should have sufficient funds. It means that without having
money, one cannot earn money. It is a clear form of the fact that finance is essential for achieving the
main objective profit of the firm.
Finance is very much important for the distribution side of economic activities distribution in
Production, distribution, exchange and consumption. For production of any commodity we need funds
for the distribution in Factors of Productions “FOP”. Land, labor, capital and entrepreneur. For
payment to these FOP’s we need funds.
The need of the finance arise from the fact that considerable time passes, before the value of goods is
realized by the producer, who must earn on production work with borrowed money. The so many
funds required for the business and for meeting such needs in time can not be provided by a single
producer.
So, to summarize it gives a short conclusion:

CONCLUSION
During all of ours talk, we always noticed that the finance has an important value in whole system of
every organisation, and we tried by studying that topic to push you much more closer, even if it wasn’t
enough developed, we wish you had a global view of and get news ideas.