2. Definition of Finance Function
• According to R.C.Osborn : The Finance function is the
process of acquiring and utilizing funds of a business.
Financing consists of raising , providing , managing of
all the money , capital or funds of any kind to be
used in connection with the business .
3. Finance function has classified into two.
• Long-term financial function (decision)
• Short term financial function(decision)
4. Long-term finance function
1. Financing Decisions – These decisions basically deal
with acquiring funds & deployment of funds
2. Investment Decisions – These decisions are related
with selection of assets . Assets are classified into
two types – Fixed Assets
- Current Assets
• The decisions regarding Fixed Assets are known as
capital budgeting decisions
• The decisions regarding current assets come under
Working Capital Management
5. Capital budgeting decision involves of allocation of
capital of funds to long term assets that would yield
benefit in the future
The evaluation of prospective profitability of new
investment
The measurements a cut off rate against which the
prospective return of new investment could be
compared
6. 3 Dividend Policy Decisions – Whatever profit company
earns , the owners are entitled to receive them.
These decisions are related with distribution of
dividends i e to decide how much profit we should
distribute as dividend & how much should be
retained in business
7. Short-term finance function
• Liquidity Decision
Investment in current assets affects the firm’s
profitability and liquidity. Current assets
management that affect firms liquidity is yet
another important finance function. Current asset
should be managed efficiently for safe the firm
against the risk of illiquidity
8. 3 concepts of finance function in
relation to business
1) Provide funds needed by the enterprise in terms
that are most favorable the light of its objectives
2) Concerned with everything that take place in the
context of a business directly or indirectly as mean
in cash
3) Concerned with procurement of funds and its
effective utilization in the business.
