INTRODUCTIONFinance is the study of funds and management. Its general areas are business finance, personal finance, and public finance. It also deals with the concepts of time, money, risk, and the interrelation between the given factors.

It is basically focused on how the money is spent and budgeted. It is one of the most important aspects in handling business.

Finance addresses the methods where business entities used there financial resources on a certain period of time. It is the application of a set of techniques used by organizations in managing their financial affairs.

FINANCIAL MANAGEMENT? Financial management is concerned with the acquisition, financing

and management of assets with some overall goal in mind.

The decision function of financial management can be broken into three major areas: the investment financing and asset management decisions.

Approaches to the Finance

According to the first approach, the term finance was interpreted to mean the procurement of funds by corporate enterprises to meet their financing needs.

Failures

(a)It is too narrow and restrictive in nature. Procurement of the funds is only one of the functions of finance and other functions are ignored by this approach.

(b) It considers the financial problems only of corporate enterprises. In that sense, it ignore the financial problem of non corporate entities like proprietary concerns , partnership firms etc.

(c) It consider only the basic and non-recurring problems relating to the business. Day-to-day financial problems of a normal company do not receive any attention .

Approaches to the Finance

The second approach holds that finance is concern with cash . As all the transactions are ultimately expressed in terms of cash , the term finance will be concerned with every activity of the enterprise. Thus , according to this approach , the finance functions is concerned with the all the functional areas of the business.

The third approach , which is a more balanced one and hence the acceptable one to the modern scholars , interprets the term finance as being concerned with procurement of funds and wide application of funds . This approach is supposed to be more acceptable as it gives equal weightage to both procurement of funds as well as utilization of the funds . This approach is called the managerial approach to the term finance.

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Role of finance in India and developed countries

Understanding mechanisms that promote sustainable long-term economic growth has long been a central mission for economists.

Despite many cross-country studies, whether developing law, legal institutions, banks and markets is a necessary condition for economic growth remains an open question.

. Compared to large and diverse countries (e.g., India), small homogeneous countries (e.g., Singapore) may have more effective legal and financial institutions because they can be tailored to the needs of the domestic economy at relatively low costs.

Role of finance in India and other countries:

Backed by legal institutions (law and courts), banks and markets are more accessible to large and listed firms than to small and private firms in most countries.

This approach thus obscures possibly considerable variations among corporate sectors and firms, and ignores other financing and alternative options to the legal system.

Role of finance in India and other countries:

In contrast to most existing research, our paper uses a single-country setting, India, one of the largest and fastest growing economies in the world, and provides a comprehensive examination of the complex linkages among legal and business environments, financing channels and growth patterns of different legal system.

IMPACT OF FINANCE OVER ECONOMY There has

been a steep fall in GDP

growth rate as compared to

previous financial

quarters.

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Role of Finance Start a business Depending on the type of business, it will need to finance the purchase of assets, materials and employing people. There will also be a need for money to cover the running costs. It may be some time before the business generates enough cash from sales to pay for these costs. Link to cash flow forecasting. Finance expansions to production capacity As a business grows, it needs higher capacity and new

technology to cut unit costs and keep up with competitors. New technology can be relatively expensive to the business and is seen as a long term investment, because the costs will outweigh the money saved or generated for a considerable period of time. And remember new technology is not just dealing with computer systems, but also new machinery and tools to perform processes quicker, more efficiently and with greater quality.

Role of finance To develop and market new products In fast moving markets, where competitors are constantly

updating their products, a business needs to spend money on developing and marketing new products e.g. to do marketing research and test new products in “pilot” markets. These costs are not normally covered by sales of the products for some time (if at all), so money needs to be raised to pay for the research.

To enter new markets When a business seeks to expand it may look to sell their

products into new markets. These can be new geographical areas to sell to (e.g. export markets) or new types of customers. This costs money in terms of research and marketing e.g. advertising campaigns and setting up retail outlets.

Role of FinanceTake-over or acquisition When a business buys another business, it will

need to find money to pay for the acquisition (acquisitions involve significant investment). This money will be used to pay owners of the business which is being bought.

To pay for the day to day running of business A business has many calls on its cash on a day

to day basis, from paying a supplier for raw materials, paying the wages through to buying a new printer cartridge

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Role of Stock exchange Stock Exchange: A stock exchange is a form of exchange which provides

services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.

To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.

Role of Stock exchangeRaising capital for businessesThe Stock Exchange provide companies with the

facility to raise capital for expansion through selling shares to the investing public.

Common forms of capital raising Besides the borrowing capacity provided to an

individual or firm by the banking system, in the form of credit or a loan, there are four common forms of capital raising used by companies and entrepreneurs. Most of these available options, might be achieved, directly or indirectly, involving a stock exchange.

Role of Stock exchangeGoing public Capital intensive companies, particularly high tech

 companies, always need to raise high volumes of capital in their early stages.

After the 1990s and early-2000s hi-tech listed companies' boom and bust in the world's major stock exchanges, it has been much more demanding for the high-tech entrepreneur to take his/her company public, unless either the company already has products in the market and is generating sales and earnings, or the company has completed advanced promising clinical trials, earned potentially profitable patents or conducted market research which demonstrated very positive outcome.

Role of Stock exchange Mobilizing savings for investment When people draw their savings and invest in shares (through

a IPO or the issuance of new company shares of an already listed company), it usually leads torational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to help companies' management boards finance their organizations.

Facilitating company growth Companies view acquisitions as an opportunity to expand 

product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

Role of stock exchange Profit sharing Both casual and professional stock investors, as large as 

institutional investors or as small as an ordinary middle class family, through dividends and stock priceincreases that may result in capital gains, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in capital losses for shareholders.

Creating investment opportunities for small investors As opposed to other businesses that require huge capital

outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

Rank Economy Stock Exchange Location

Market Capitalizatio

n(USD

 Billions)

Trade Value(USD

Billions)

1  United States Europe

NYSE Euronext (US & Europe) New York City 14,242 20,161

2  United States Europe

NASDAQ OMX (US & North Europe)

New York City 4,687 13,552

3  Japan Tokyo Stock Exchange

Tokyo 3,325 3,972

4  United Kingdom

London Stock Exchange

London 3,266 2,837

5  China Shanghai Stock Exchange

Shanghai 2,357 3,658

6  Hong Kong Hong Kong Stock Exchange

Hong Kong 2,258 1,447

Major stock exchanges

7  Canada Toronto Stock Exchange

Toronto 1,912 1,542

8  Brazil BM&F Bovespa São Paulo 1,229 931

9  Australia Australian Securities Exchange

Sydney 1,198 1,197

10  Germany Deutsche Börse

Frankfurt 1,185 1,758

11  Switzerland SIX Swiss Exchange

Zurich 1,090 887

12  China Shenzhen Stock Exchange

Shenzhen 1,055 2,838

13  Spain BME Spanish Exchanges

Madrid 1,031 1,226

14  India Bombay Stock Exchange

Mumbai 1,007 148

15  South Korea Korea Exchange

Seoul 996 2,029

16  India National Stock Exchange of India

Mumbai 985 589

17  Russia MICEX-RTS Moscow 800 514

18  South Africa JSE Limited Johannesburg 789 372

Financial Management and its Future Prospects It was early 19th century when Financial Management came out

as an independent area of study. At that time financial management was used in, understanding and managing mergers, preparing feasibilities of new companies or products, and raising finances for new ventures.

Value maximization has been the focus of financial management, since the beginning of 21st century. Both trends of globalization and fast progress of information technology have played their roles in adding on to the role of financial management.

l financial management continue to play for companies in future? This is certainly not one of the difficult questions to answer, as the goal of financial management will continue to facilitate companies in setting their visions and preparing for future. Such an objective suggests that finance is no longer just an operational activity, but it’s now more strategic in nature.

Responsibilities of Finance manager? A financial manger is a person who takes care of all the important

financial functions of an organization. The person in charge should maintain a far sightedness in order to ensure that the funds are utilized in the most efficient manner. His actions directly affect the Profitability, growth and goodwill of the firm.

Following are the main functions of a Financial Manager:

Raising of Funds A firm can raise funds by the way of equity and debt. It is the

responsibility of a financial manager to decide the ratio between debt and equity.

It is important to maintain a good balance between equity and debt.

Responsibilities of finance managerAllocation of FundsOnce the funds are raised through different

channels the next important function is to allocate the funds. The funds should be allocated in such a manner that they are optimally used. In order to allocate funds in the best possible manner the following point must be considered

The size of the firm and its growth capability Status of assets whether they are long term or

short term Mode by which the funds are raised.

Responsibilities of finance managerProfit PlanningProfit earning is one of the prime functions of

any business organization. Profit earning is important for survival and sustenance of any organization.

Profit planning refers to proper usage of the profit generated by the firm.

Profit arises due to many factors such as pricing, industry competition, state of the economy, mechanism of demand and supply, cost and output

Scope of Finance Estimating the Requirement of Funds The finance department must estimate the capital

requirements of the firm accurately for long term and short term needs. In estimating the capital requirements of the business, the finance department must take help of the budgets of various activities of the business e.g. sales budget, production budget, expenses budget etc. prepared by the concerned dept.

In the initial stage, the estimate is done by promoters but in a growing concern, it is done by the finance dept.

In estimating the requirement of funds, nature and size of the business, modernization and expansion plan should be given due consideration.

Scope of Finance Investment of Funds In taking decisions for the investment of long term funds, a

careful assessment of various alternatives should be made through capital budgeting, opportunity cost analysis and many other techniques used to evaluate the investment proposals.

Determining the Capital Structure By capital structure refers to the kind and proportion of

different securities used for raising the required funds. Once the total requirement of funds is determined, a decision regarding the type of securities to be issued and the relative proportion between them is to be taken.

In determining these ratios, cost of raising finance from different sources, period for which funds are required and several other factors should be considered.

Scope of FinanceChoice of Sources of Finance A company can raise funds from different

sources e.g. shareholders, debenture holders, banks, financial institutions, public deposits etc. Before raising the funds, it has to decide the source from which funds are to be raised.

The choice of the source of finance should  be made very carefully by taking a number of factors into account such as cost of raising funds, conditions attached, charge on assets, burden of fixed charges, dilution of ownership and control etc.

Scope of Finance Management of Cash It is the prime responsibility of the finance manager to see

that an adequate supply of cash is available at proper time for the smooth running of the business.

Availability of cash is necessary to maintain liquidity and credit- worthiness of the business. Excess cash must be avoided as it costs money.

Financial Controls The financial manager is under an obligation to check the

financial performance of the funds invested in the business. There are a number of techniques to evaluate the performance viz. Return on Investment (ROI), budgetary control, cost control, internal audit, ratio analysis and break-even point analysis. The financial manager must lay emphasis on financial planning as well.

Sources of FinanceExternal sources of finance  A)Short Term sources- Bank overdraft: Bank overdraft is a facility

given by banks to its business customers, people having current accounts. Through this facility the customers can overdraw their accounts to a greater value than the balance in the account.

Advantage Disadvantage

No need for collaterals or security.

More flexible and the overdraft amount can be adjusted every month according to needs.

Interest rates are usually variable and higher than bank loans

Cash flow problems can arise if the bank asks for the overdraft to be repaid at a short notice.

Source of FinanceTrade Credit: Usually in business dealing

supplier give a grace period to their customers to pay for the purchases. This can range from 1 week to 90 days depending upon the type of business and industry.

Advantage No interest has to be paid. Disadvantage The business may not get cash discounts.

By delaying the payment of bills for goods or services received, a business is in effect obtaining finance which can be used for more important expenditures.

Sources of Finance Factoring of debts: It involves the business selling its bills

receivable to a debt factoring company at a discounted price. In this way the business get access to instant cash.

Medium Term sources:- Hire purchase: It involves purchasing an asset paying for it

over a period of time. Usually a percentage of the price is paid as down payment and the rest is paid in instalments for the period of time agreed upon. The business has to pay an interest on these instalments.

Leasing: Leasing involves using an asset, but the ownership does not pass to the user. Business can lease a building or machinery and a periodic payment is made as rent, till the time the business uses the assets. The business does not need to purchase the asset.

Sources of FinanceLong term sources:- Long term Bank loan: borrowing from bank for

a limited period of time. The business has to pay an interest on the borrowing. This interest may be fixed or variable. Businesses taking loan will often have to provide security or collateral for the loan.

Issue of share: It is a permanent source of finance but only available to limited companies. Public limited companies can sell further shares up to the limit of their authorized share capital. Private limited companies can sell further shares to existing shareholders.

Sources of financeDebentures A debenture is defined as a certificate of

acceptance of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures. It is issued for a long periods of time. Debentures are generally freely transferrable by the debenture holder. Debenture holders have no voting rights and the interest given to them is a charge against profit.

Procedure of Finance A statement of assets, liabilities and capital on a

given date

Assets:

Fixed: land, building, equipments etc

Current: Cash in hand or in bank, stocks, debtors

Liabilities

Long term: Loans > 1 yr

Current/ short term: overdraft, taxes

Capital= Assets -Liabilities

FINANCE FUNCTION IN RELATION WITH OTHER FUNCTIONSOther than finance,every business generally operates in

three main functional areas viz. Production,Marketing and Personnel.

All these functions are closely related to finance as all of them need funds;which is the area covered by finance function.

To market the finished goods properly in the market,the business has to have a proper investment in the finished goods to guarantee regular flow of goods in the market.

It may be required to have good distribution systems which may call for investment in terms of fixed assets or labour force.

To conclude,it may be stated that all the functions or activities of the business are ultimately related to finance.

A statement of assets, liabilities and capital on a given date Assets: Fixed: land, building, equipments etc Current: Cash in hand or in bank, stocks, debtors LiabilitiesLong term: Loans > 1 yr Current/ short term: overdraft, taxesCapital= Assets -Liabilities

Balance sheet

Risk and ReturnReturn:Income received on an investment

plus any change in market price,usually expressed as a percent of the beginning market price of the investment.

Risk: The variability of the returns from those that are expected.

Prevention and cure for financial crises.

Export-oriented development policy

Countries with an export-oriented development strategy have experienced more rapid export and economic growth than those with import-substitution policies, and have avoided debt problems better.

Export-led growth requires import liberalization and increasing openness of the economy, which expose a country to larger markets but severe international competition. The competition enhances economic efficiency, technology and productivity, which, in turn, results in higher economic growth and a larger capacity to absorb external debt.

Many Asian economies still suffer from excessive government intervention, over-regulations and large protected segments in the economy, which together yield low productivity and low product quality.

Economic reform and opening

Structure of finance:The way in which a company's assets are finance, such as short-term borrowings, long-term debt, and owners equity. Financial structure differs from capital structure in that capital structure accounts for long-term debt and equity only.

This financial structure is a mixture that directly affects the

risk and value of the business. The main concern for the financial

manager of the company is deciding how much money should be

borrowed and the best mixture of debt and equity to obtain. The

financial manager also has to find the least expensive sources of

funds for the company to use.

Financial structure is divided into the amount of the

company's cash flow that goes to creditors and the amount that goes

to shareholders. Each business will have a different mixture

depending on its needs and expenses. Therefore, each company will

have its own particular debt-equity ratio. For example, a company

could issue bonds and use the proceeds to buy stock or it could issue

stock and use the proceeds to pay its debt.  

THANK YOU FROM:

ABHIJITH NAIR(LEADER) PANKHIL RABADIYA AKANKSHA PANCHOLI MIRAJ PATEL DIKSHIT KAVATHIYA HARDIK KHUNT JAY SONI HARDIK PRAJAPATI