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Business Finance
STD. XII
Secretarial Practice
Introduction
Business finance is a broad concept. It deals with all financial activities of the business. The term business covers both commerce and industry. In simple words, business finance applies to all financial activities of agriculture, industry, banking, transport, insurance, etc. Thus the scope of business finance includes commercial finance, industrial finance, property finance, corporate finance and agricultural finance. In an academic world, the term corporate finance is now known as financial management.
Financial Management
Financial management is a specialised function of general management. It refers to management of business funds. It is mainly concerned with raising of finance and its effective utilization for achievement of goals of the organization.
Definition
Kuchal S.C, Financial management deals with procurement of funds and their effective utilization in business.
2. Executive Functions: Forecasting financial requirements Deciding sources of funds Investment decisions Dividend policy Checking and analysis of financial performance Advising BOD
Financial Planning
Financial planning is an important function of financial management. It is a continuous process in day to day administration of business. It is not possible for business manager to go ahead unless he prepares financial plan. FP is not only required for profit making but even for survival of a firm. The term FP refers to assessment of financial requirements and arranging the sources of capital.
Definition
J.H. Boneville The financial plan of a corporation has two fold aspects, it refers not only to capital structure of the corporation but also to the financial policies which corporation has adopted or intends to adopt.
Significance of FP
Elimination of waste Co-ordination Dynamism Communication Decision making Integration Futuristic
Capital Structure
Capital structure constitutes two wards i.e. capital and structure. Capital refers to investment of funds in the business while structure means arrangement of different components in proper proportion. Thus capital structure means mix-up of various sources of funds in desired proportion.
Definition
Weston and Bringham Capital structure is the permanent financing of firm represented by long term debt ,preferred stock and net worth.
External factors
1. Market condition 2. Attitude of investors
3. Cost of capital
4. Government regulations
5. Attitude of financial institutions 6. Rate of interest 7. Taxation 8. Competition
Fixed Capital
The concept of fixed capital was first theoretically analysed by David Recardo. It refers to any kind of real or physical capital i.e. fixed assets. It is not used for the production of goods. Fixed capital is that portion of total capital which is invested in fixed assets such as land, building, equipment, etc. According to Karl Marx, Fixed capital also circulates, except that the circulation time is much longer.
Working Capital
There is no universally accepted definition of working capital. Various financial experts have used this term in different ways. difference between current assets and current liabilities. Gerstenbergh, The excess of current assets over current liabilities Western and Brigham, WC refers to the firms investment in short term assets cash, short term securities, accounts receivables and inventories.