The Finance Functions

Business Finance
Learning Objectives:
• Define the role of finance in a business
• Identify the key finance functions within an organization
• Explain the importance of each function for business success
• Analyze real-world examples of how finance functions drive
decision-making
Warm-up:

Review basic financial concepts:

• Assets
• Liabilities
• Equity
• Profit and Loss Statements
Defining Finance in Business
Finance
• Defined as the provision of money at the time when it is required.
• Lifeblood of an enterprise
• Every enterprise whether big, medium or small, needs finance to carry on its
operation and to achieve its targets.
Finance in Business
• Business finance is related to all business organizations earning or raising money and
spending and investing money
• Financial Manager: refers to anyone directly engaged in making or implementing financial
decisions
Financial
Management
• means planning, organizing,
directing and controlling the
financial activities such as
procurement and utilization
of funds of the enterprise.
• applying general
management principles to
financial resources of the
enterprise.

Financing is the act of bringing

money into an organization.
Core Role
Finance in Business: Core Role

• Acquiring resources
• Allocating resources
• Managing resources
Acquiring resources
• Acquiring needed funds
• Determining funds from the right resources at the right time
Allocating resources
• Allocating available funds
• Determining where to use the funds currently available to the firm
that are considered profitable
Managing resources
• Efficient utilization of Financial Resources: Using the funds
efficiently
• Ensuring the allocated resources are used effectively, monitored
and adjusted as needed
Impact on Different Business Functions:

• Marketing: Marketing needs resources for campaigns and

promotions. Finance analyzes budgets, allocates funds, and tracks
return on investment.
• Operations: To produce goods or services, materials and personnel
are needed. Finance ensures efficient procurement, manages
wages and salaries, and monitors cash flow to keep operations
running smoothly.
• Human Resources: Recruiting talent requires training and
compensation packages. Finance helps plan for these
expenses, assess salary structures, and manage employee
benefits.
Classification of Finance
Classification of Finance
A. As to form of negotiation
• Direct Finance
• Indirect Finance
B. As to user
• Public Finance
• Private Finance
As to form of negotiation

• Direct Finance
• Involve in direct barrowing with direct relationship between barrower and
lender
• Indirect Finance
• Involves the use of financial intermediaries
As to user
• Public Finance
• Revenue and expenditures patterns of the government
• Private Finance
• Personal finance: conducted by consumers/individuals
• Finance of non-profit organizations: conducted buy non-profit organizations
• Business finance: conducted by businesses or enterprises for profit
Key Functions
o Raising Capital: Discuss methods of obtaining funds like debt financing, equity financing, and internal sources.
o Financial Planning & Budgeting: Explain the process of forecasting, budgeting, and monitoring financial
performance.
o Investment Decisions: Analyze capital budgeting techniques and criteria for evaluating investment
opportunities.
o Working Capital Management: Discuss strategies for managing current assets and liabilities to optimize cash
flow.
o Risk Management: Explain identifying, measuring, and mitigating financial risks through
insurance, hedging, and diversification.
o Dividend Policy: Analyze factors influencing dividend payout decisions and their impact on shareholder value.
Business
Business

• Any lawful economic activity that involves rendering services, trading, manufacturing,
construction, mining, and financial entities
• Uses and performs finance functions

Efficiency: the relationship between input and output; getting something done at the
least cost, time and effort
Effectiveness: a measure of quality; producing the desired result
Types of Ownership
• Sole proprietorship
• Partnership
• Corporation
• Cooperative
Primary goals of Business
• To earn profit
• To increase its own value as an economic entity (Owner’s equity)
• To improve the quality of life in the community (Social
Responsibility)
To earn profit
• Funds are invested in a business to earn sufficient
return on investment
• Net profit realized results in an increase in assets
and owner’s equity
Increasing the value of the business
• Primary bases in measuring the value of a business
• Growth
• Stability

Growth: measured in terms of increase in assets that appreciate

in value, improved production capacity accompanied by
increase in sales volume and increase in owner’s equity

Stability: the ability to weather the ups and downs in the

economy; the ability to continue operations despite anticipated
risks in the business
Social responsibility of Business
• Refers to businessman’s contribution to the improvement of
the quality of life in his community
• Adhering to legal and moral standards:
• Company objectives
• Policies
• Practices
•Multiplier Effect of a Business in a
community:
•The chain effects of business activities
Thank you!