Finance and Function of Financial Management

What is Finance…?

Finance means the machinery of money dealing. The machinery by which money which people save is put together and lent out to people who want to borrow it. Finance becomes international when our money is lent to borrowers in other countries. The biggest borrowers of money, in most countries, are the Governments

So, finance is the machinery that handles capital, collects it from those who save it and lends it to those who want to use it and will pay a price for the loan of it. This price is called the rate of interest, or profit. The borrower offers this price because he hopes to be able, after paying it, to benefit himself out of what he is going to make or grow or get with its help, or if it is a Government because it hopes to improve the country's wealth by its use.

Types of Finance

Finance covers the basic four areas

1.      Corporate Finance

2.      Investment

3.      Financial Institution

4.      International Finance

Functions of Financial Management
A financial manager has to concentrate on the following areas of the finance function

1.      Estimating Financial Requirements

2.      Deciding Capital Structure

3.      Selecting a Source of Finance

4.      Selecting a Pattern of Investment

5.      Proper Cash Management

6.      Implementing Financial Controls

a.       Return Investment

b.      Ratio analysis

c.       Break even analysis

d.      Cost control

e.       Cost and internal audit

7.      Use of various control techniques

8.      Use of Surpluses