Aims of financial functions

The primary aim of finance function is to arrange as much funds for the business as are required from time to time and manage funds in such a way so as to ensure their optimum utilization and their procurement in a manner that the risk, cost and control considerations are properly balanced in a given situation.

Acquiring sufficient funds

The main aim of finance function is to assess the financial needs of an enterprise and the finding out suitable sources for raising them. The sources should be commensurate with the needs of the business.

Proper utilization of Funds

The funds should be used in such a way that maximum benefit is derived from them. The returns from their use should be more than their cost. It should be ensured that funds do not remain idle at any point of time. Those projects should be preferred which are beneficial to the business.

Increasing Profitability

It is true that the money generates money. To increase profitability, sufficient funds will have to be invested. Finance function should be so planned that the concern neither suffers from inadequacy of funds nor wastes more funds than required. The proper control should also be exercised so that the scarce resources are not frittered away on uneconomical operations.

Maximizing Firm’s value

Finance function also aims at maximizing the value of the firm. It is generally said that a concern’s value is linked with its profitability. Even though profitability influences a firm’s value but it is not all. There are some other considerations which also influence a firm’s value like the condition of money market, the cost of funds etc.

An effective finance function, which includes all aspects of finance, tax, and treasury and, typically, risk management, makes a positive contribution to the achievement of the organization’s strategic objectives and to its value creation goals.

Finance Manager- Functions

The changed business environment has increased the role of finance manager. Increasing pace of industrialization, rise of larger-scale units, innovations in information processing techniques and intense competition has increased the need of financial planning and control.

Financial forecasting and planning
Finance manager has to estimate the requirement of funds to acquire assets. The decision has to be taken keeping in mind both the fixed capital and working capital requirement. How to acquire such funds and when to apply the raised funds is the crucial role of a finance manager.

Acquisition of funds
Funds can be raised from many sources such as banks , equity market , financial institution etc. Main role of the finance manager is to look out for the most cheapest source of finance after reviewing the pros and cons of each source that is available.

Investment of funds
Funds should be used in the best possible way. It should always be kept in mind that return on investment must be always higher than the cost of acquisition.
After the funds have been acquired it is the role of finance manager to allocate it to various areas of requirement. Such areas may be fixed assets, working capital or investment in other sources.
A finance manager has to keep the principles of safety, liquidity and soundness while investing funds.

Helping in value decision
Merger and acquisition has become a common phrase in this competitive market. A finance manager must help the management in such a valuation and must understand various methods of valuation of shares and other assets so that correct values are arrived at.

Maintaining proper liquidity
Maintaining liquidity is very essential for a business concern to finance short term capital need, day to day working requirements and to take advantages of sudden market opportunities. Finance manager has to take decision on the degree to which liquidity has to be maintained so that funds are not kept idle.

Financial Planning- Steps

Financial plan refers to a statement estimating the amount of funds that is required and deciding its composition. The quantum of funds depends on the asset requirement of the business. The time when funds are required has to be properly judged so that it can be brought into the business without any delay.

Steps that has to be taken in financial planning are very clear

Establishing financial objectives
Financial objective of the business must be clearly set. Both Short term and long term needs should be kept under consideration. Main aim must be the optimum utilization of the financial resource. The concern should take advantage of the prevailing economic conditions.


Formulating Financial Policies
Financial policies deal with the procurement, administration and distribution of funds. It must take care of the present and future financial needs simultaneously. It must have clear cut plans for raising funds as well as its probable uses.

Formulating procedures
Procedures are formed to ensure consistency of actions. The procedure follow the formulation of policy. If it is a policy to raise short term funds from bank, then a procedure must be laid to approach the lenders and the person authorized to initiate such actions.


Providing for flexibility
The financial planning should ensure proper flexibility in objectives, policies and procedures to adjust according to changing economic conditions. Changing economic conditions may offer new opportunities. The concern should be capable of taking advantage of such a situation. A rigid financial plan restricts to gain such advantages.

Corporate Finance- Making Simple

The main objective of financial management is to arrange sufficient finances for meeting short-term and long term needs. These funds have to be procured at minimum costs so that profitability of the business can be maximized.

Here are some simple steps that can be followed to manage the finances of a corporate

Estimating Financial Requirement

This is the foremost task to determine the short term and long term needs of finance on the basis of its strategic importance. Such an estimate must be screwed to perfection since shortage of funds would have an adverse effect and excess funds may lead in extravagant spending, speculative activities and rising interest figures.

Selecting sources of finance

There may be as many sources of finances such as shares, debentures, financial institutions, banks and public deposits. If funds are required on a long term basis then shares and debentures may help the cause. Financial institutions and banks can be used to finance on a short term need.
If the management does not want to tie its assets then public deposits may used as a source to finance.

Selecting a Pattern of Investment

After the finances are available it becomes very necessary to allocate it properly. Finances must be first allocated to procure fixed assets(Plant and Machinery) and then the remaining must be allocated to meet the working capital requirements(Day to day working requirements like wages, bills etc). Proper techniques like cost-benefit analysis and opportunity costs analysis must be followed before a capital investment.

Proper Cash Management

Cash may be required to purchase raw materials, pay creditors, wages, utility bills etc. Inadequate cash may hamper the production cycle or may limit the scope of some attaining seasonal and contingent advantages. Excess cash may cause funds to remain idle and increasing the cost of capital by rising Interest charges. Hence proper cash management becomes a must by maintaining balance between cash inflows and cash outflows.

Implementing Financial Controls

Various control Devices and techniques must be used in ordinary course of business to monitor the usage of finances. These devices are return on investment, budgetary control, break even analysis, cost control, ratio analysis and cost and internal audit.
Return on investment is taken as the best measure in many corporate

Proper use of Surplus

To gain maximum growth judicious use of surpluses becomes a must. Surplus can be used in diversification, expansion and to declare dividends that would satisfy shareholders and eventually helps in raising market prices of shares.
Ploughing back of profits may be used to finance expansion and diversification but may go against the interest of shareholders. So an optimum balance has to be carved out between the two options.

This simple process is used by businesses to grow into corporate.