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Finance- Meaning & Importance

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Definition
Finance is a branch of economics concerned with resource allocation as well as resource management, acquisition and investment. Simply, finance deals with matters related to money and the markets. In other words, Arrangement of funds is called finance. All organizations need finance for operating its different activities. So, we can say finance is just like blood for survival the business in changing economic environment. Fund, money, saving, cash, reserves and assets are the basics of finance. Finance word is very deep and in modern age, this word is also used mostly in the sense of Business Finance. To create equilibrium in business finance, we use different tools like financial analysis, financial planning, ratio analysis, cash flow analysis, fund flow analysis and working capital management analysis etc.

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Definition of 'Financing'
The act of providing funds for business activities, making purchases or investing. Financial institutions and banks are in the business of financing as they provide capital to businesses, consumers and investors to help them achieve their goals. The use of financing is vital in any economic system as it allows consumers to purchase products out of their immediate reach, like houses, and businesses to finance large investment projects.

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Cont.
Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.

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Objectives/Goals of Financial Management


The financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be1.

To ensure regular and adequate supply of funds to the concern. To ensure adequate returns to the shareholders. This will depend upon the earning capacity, market price of the share & expectations of the shareholders. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost. To ensure safety on investment, i.e., funds should be invested in safe ventures so that adequate rate of return can be achieved. 12

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6/ 5. /2 To plan a sound capital structure-There should be 5

What more?
Finance includes planning of financial resources, making optimum capital structure and effective utilization of financial resources by deep analysis of cost of capital and capital budgeting tool . Finance touches the nervous system of business body. Share market's fluctuation, Govt. policies and strategy , Economic changes and other changes in business environment can only analysed with the help of Finance . Finance and accounting is also so closed linked , So, Financial decision are also effected from accounting results also . Study of finance is needed to every general person because , every person also want to earn money from passive source .Good knowledge of Finance can also helpful for general person who want to invest in company . Deep knowledge of finance can enable anybody to open to new way for generating new fund and earning . But it is also dangerous when somebody uses finance's tool for generating black money Without adopting proper system of finance of business, business may fail.

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Why Finance Matters?


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Importance of Corporate Finance Importance of Finance in Business Importance of Personal Finance 1. As said before finance is important to start operation

Below are some reasons why finance is of great importance : 2. business needs to acquire machines and equipment thus there is a great need for finance 3. since the market is becoming more and more competitive huge budget should be allocated for effective marketing 4. All businesses have to pay for electricity bills , bank charges, petrol, water supply etc these are called day to day expenses thus finance is important for the smooth running of the organisation 5. Finance is also needed for expansion i.e. to invest in new technology .

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Types of Finance
There are mainly three type of finance found in the economy. 1. Personal finance: Personal finance is the finances of individuals and families concerning household income and expenses, credit and debt management, saving and investing, and income security in later life. In this finance decisions may involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement. Personal financial decisions may also involve paying for a loan, or debt obligations. 2. Corporate finance: Corporate finance is the finances of for organizations including corporations, trusts, partnerships and other entities. It is the task of providing the funds for a corporation's activities. Corporate finance can easily categorized in two category. First one is Short term finance which generally involves balancing risk and profitability, while attempting to maximize an entity's wealth and the value of its stock. Long term funds are provided by ownership equity and long-term credit, often in the form of bonds. The balance between these forms the company's capital structure. 3. Public Finance: Public finance is the financial affairs of domestic and international governments and other public entities. It is also useful 2 /1 for Govt. So, all countries make finance budget for whole financial 6 /2 year. Finance budget is also tool of finance which tells estimated 5 expenses and incomes of Govt. After making good finance budget,

Role of financial Management


Role of financial management is very wide & finance plays a vital role in the business. By saying that we are not under estimating the role of finance in the case of monies held by individuals but we can emphasize the role of financial management in terms of what it does for business which is explained as below: Capital budgeting Working capital decisions Dividend decision Estimation of capital requirements Investment of funds Management of cash Financial controls maximize corporate value

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Role Of Finance Manager


Financial managers must cooperate with other managers in charge of general planning company. Financial managers must focus on various investment and financing decisions, and other aspects related to Financial managers must cooperate with managers in the company so the company can operate as efficiently as possible Financial managers must be able to connect the company with the financial markets, where companies can obtain funds and corporate securities can be traded. External factors such as environmental pollution, product safety assurance and safety becomes more important to consider. Fluctuations in all levels of business activity and the changes that occur in conditions of financial markets is an important aspect of the external environment.

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