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of its immediate and future requirements for funds, the possible sources thereof and
the benefits that may accrue to the organization itself and to the community arising
from efficient and effective utilization of said funds.
IMPORTANCE OF BUSINESS FINANCE
-
companies' operations
very important factor in FUNDING, BUDGETING, PERFORMANCE
MANAGEMENT
to
to
to
o
earn profits
increase the value of business as an economic entity
improve the quality of life in the community
To earn profit. Funds are invested in a business to earn sufficient return
on investment. Goods and services are made available to the public and
are billed to customers/clients with sufficient rmarkup to cover operating
expenses, financing charges, income taxes and desired net profit
Net profit - realized results in an increase in assets and owners'
equity
To increase its own value as an economic entity. Growth and
stability are the primary bases in measuring the value of a business entity.
Growth - may be measured in terms of increase in assets that appreciate
in value, improved production capacity accompanied by increase in sales
volume and increase in owners' equity Stability - refers to its ability to
weather the ups and downs in the economy or its ability to continue
Allocation of Funds
In accordance with a companys financial objectives and standards, projects
or activities and operations are carefully planned, evaluated based on certain
criteria, and subsequently ranked for the allocation. The objective is to be assured
that funds are channeled to activities that are considered profitable and/or will
increase the value of the business itself and that company costs and risk are
minimized.
Procurement of Funds
Capital must be available at the least cost when its needed. The
procurement function requires awareness of the different sources of funds and cost
involved. There are short-term and long-term sources with varying requirements
and conditions.
Cost of capital varies with the sources thereof. On boeeowed funds, it is in the
form of financing charges (interest, commissions, and service charges). On capital
contributed by owners or stockholders, the corresponding cost is in the form of
dividends or shares in profit.
Effective and Efficient Utilization Financial Resources
Efficient utilization of financial resources refers to their economical use.
In other words, we see to it that financial resources are actually being used for what
they have been intended. Inefficiency in the use may be caused by extravagance in
the choice of property and equipment, unnecessary expenditures, tardiness of
personnel and non-productive resources.
Effective utilization of financial resources refers to their use towards the
attainment of predetermined objectives. This requires a periodic review of
operations to determine whether they are in accordance with plans and whether the
plans, as prepared, will enable the company to attain its economic short-term goals
and long-term objectives considering the changes in economic environment.
Financial resource must be utilized in a manner that minimizes cost arising
from wastage and lost opportunities due to delays in operations and idle or nonproductive resources. It requires adoption of effective control measures. When
approved projects are already in operations, there should be constant follow-up by
observation, inspection, periodic review of operation with use of progress reports
and comparison between plans and operation so that prompt remedial or corrective
measures may be adopted.
INVESTMENT PORTFOLIO
It refers to a brief case that is normally being used in carrying business
papers and documents. Because of this, the term came to be used as referring to
the aggregate of assets held as investments by an organization or individual.