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DEFINITION: ´ That business activity which is
concerned with the acquisition and conservation of
capital funds in meeting the financial needs and overall
objectives of business enterprise.µ (Wheeler)

According to Guthamann & Dougallr ´ Business finance can

be broadly defined as the activity concerned with the
planningr raisingr controlling and administering the
funds used in the businessµ

Meaning: Business finance is the process of raisingr

providing and administering of all money/funds to be
used in a business enterprise
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· Financial management refers to that part of

management activity which is concerned with the
planning and controlling of the firm·s financial
resources. IT deals with finding out various
sources of raising funds for the firm and also using
such funds in the most appropriate manner

 
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FM helps in
· Financial planning & successful promotion of an
enterprise
· Acquisition of funds at minimum cost
· Proper use & allocation of funds
· Taking sound financial decisions
· Improving profitability through financial control
· Increasing the wealth of investors and the nation
· Promoting and mobilising individual and corporate
savings

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· Estimating financial requirements (short term &

long term)
· Deciding capital structure
· Selecting a source of finance
· Selecting a pattern of investment
· Proper cash management
· Implementing financial controls
· Proper use of surpluses
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· mong-term asset mix or investment decision

· Capital-mix or financing decision
· Profit allocation or dividend decision
· Short-term asset mix or liquidity decision






Also referred to as Capital Budgeting Decisionr involves
the decision of allocation of capital to long term
assets that would yield benefits in the future.

Important aspects-
a) Evaluation of prospective profitability and
b) Measurement of cut-off rate or required rate of
return

Evaluation should be made in terms of both risk and

return

Capital budgeting also involves replacement decisions

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Deciding- whenr where from and how to acquire funds to
meet the investment needs.

Central issue- determining the optimum capital

structure (mix of debt & equity). Capital structure will
be optimum when the market value of shares is
maximised

Proper balance has to be struck between risk & return

Also considers factors such as controlr flexibilityr loan

agreementsr legal aspects etc
   



Decide whether the firm should distribute all profitsr or
retain themr or distribute a portion and retain the
balance.
The proportion of profits distributed ² dividend-payout
ratio
The proportion of profits retained ² retention ratio
Optimum dividend policy ² maximises the market value
of shares
Dividend can be paid either in cash or in shares. [Bonus
shares]
    


Investment in current assets or current asset
management or working capital management

Short term survival is a pre requisite for long term

success
mack of liquidity ² insolvency ( in extreme situations)
Profitability-liquidity trade-off

2 basic ingredients-
a) overview of working capital management as a whole
b) Efficient management of individual current assets
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· External Factors:
a) State of economy
b) Structure of capital & money markets
c) Requirements of investors
d) Government policy
e) Taxation policy
f) mending policy of financial institutions
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´ Nature and size of business

´ Expected returnr cost and risk
´ Composition of assets
´ Structure of ownership
´ Trend of earnings
´ Age of the firm
´ miquidity Position
´ Working capital requirements
´ Conditions of debt agreements
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· Determining Financial needs
· Choosing the sources of funds
· Financial Analysis & Interpretation
· Cost-Volume Profit Analysis
· Capital Budgeting
· Working Capital Management
· Profit Planning and Control
· Dividend Policy
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· Financial Forecasting & Planning
· Acquisition of funds
· Funds allocation
· Helping in valuation decisions
· Maintain proper liquidity
· Profit planning- operating decisions in the
areas of pricingr costsr volume of output and
the firm·s selection of product lines.
· Understanding capital markets