Finance is the lifeblood of all types of economic activity. It is so in dispensable
that no one can neglect nor ignore the importance of finance. Finance is
defined as distribution of and purchase of liability and equity claims issued
for the purpose of generating revenue producing assets its management of
monetary affairs of the company it includes determining what has to be made for
raising money on best term available and what has to be made for allocating
available funds to the best use .Finance is the administration of economic
activity it includes banking money and credit for different type and classes.
All major business decisions made financial implications no matter whether an
organization is small or big newly started or existing business needs finance.
If decision relating to money or funds fails it may result in failure in whole
of business organization .Finance function is a comprehensive activity which
includes not only sources but also cost associated with their resources
duration of requirement and proper utilization of funds.
Global Scenario of Finance:
In recent years the financial sector in most of the countries around the
world has undergone major changes. Deregulation, liberalization and
technological innovations ,allow financial institution to a larger variety of
products and services, making the traditional frontiers between banking,
securities and insurances sectors more. In practice ,the financial sector is in
a process rapid transformation. Reforms are continuing as part of the
overall structural reform aimed at improving the productivity and efficiency of
the economy. The role of an integrated financial infrastructure is to stimulate
and sustain economic growth .The US$28 billion Indian financial sector has
grown at around 15 percent and displayed stability for the last several years,
even when other markets in the Asian region were facing a crisis. This
stability was ensured through the resilience that has been built into the
system over time. The financial sector has kept pace with the growing need
of corporate and other borrowers. Banks capital market participants and
insurers have developed a wide range of product and service to suit varied
The world system stands for a set of bodily organs like
composition or concurring function, a scheme of classification and a method of
organization. Finance holds the key to all human activity. Finance is the study
of money, its nature, creation, behaviours , regulation and administration. So
all those activities dealing in finance are organized in the know as the
financial system or financial sector .The evolution of the financial system in
India has been interlinked with the growth of the macro economics. The
financial system has travelled up and down from barter financial system greatly
influenced by the spread of urban society and above all the advent of large-scale
industrialization in the second half of the nineteenth century, altered the
expansions of the railways and especially with the revolution of information technology .In India, the
evolution of financial system reflected its political, social and economic need
and aspiration. Government has played a large role in the creation and broad
basing of the financial system depending in the country. The government has exerted
its influence over the flow of credit control and direction. It is also big borrower
as well as regulator of the financial system .The growth path of financial
system can be divided into three distinct phases the first phases are
characterized by active state intervention with all view to build up the institutional
infrastructure. Developing countries are in a hurry to catch up with modern.
banking and development in money and capital markets and they can’t
afford to wait for
the spontaneous and autonomous growth of the financial system to take
place .The financial system is closely connected or interlinked institutions
agents practices, market transactions claims and liabilities in an financial
system is concerned about money, audit and finance some of the terms
are related but some different form each other.
Money refers to current medium exchange .Finance is monetary resources
comprising debt and ownership funds of state company .Credit or loan is a sum
of money to be returned normally with interest .Currency and exchange form an
essential part of financial system.
Scope of the Financial Function:
a) Estimation of the financial requirements:
Estimating the financial requirements is the first and the foremost task
and long term financial needs of the concern. This calls for preparation of the
financial plan for present as well as for future. The amount required for
purchasing fixed assets as well as needs of funds for working capital have to
b) Deciding the capital structure:
The term capital structure refers to the kind and proportion of deferent
securities for raising funds. After deciding the quantum of funds required it
should be decided as to which type of securities should be raised further while
deciding about the capital structure due consideration.
c) Selecting a source of finance:
Once the capital structure is decided an appropriate source of finance
is selected the various sources of finance include share capital, debenture,
financial institution ,commercial banks and public deposited etc.
d) Selection pattern of investment:
Once the funds have been procured the decision about investment pattern
that is to be taken. A decision has to be taken as to type of assets that are
to be purchased first funds may be invested in fixed assets and an appropriate
portion may be kept for the purpose of working capital.
e) Proper cash management:
Requirement at different times and then make arrangements for acquiring
f) Implementing financial control:
An efficient system of financial management necessitates the of various
control device generally such as ROI, Budgetary Control, Break Even Analysis,
Cost Control and Ratio Analysis.
g) Proper use of surpluses:
The utilization of profit or surpluses is also an important factor in
financial management. A judicious use of surplus is essential for expansion and
diversification plans and also in protecting the interest of share holders.
Objective of the Financial Function:
The primary objective of the finance function is to arrange for required
funds for the business from time to time
a) Acquiring sufficient funds:
The basic objective of finance function is to asses or estimates the
financial requirements of an enterprises and then finding our suitable sources
for revising them.
b) Proper utilization of funds:
Though selecting the source and rising of funds is most important
objective of the finance function. The proper utilization of such funds is even
more critical, the funds should be utilized in such a way that maximum benefit
is derived from them.
c) Increasing profitability:
The planning and control of finance function aims at increasing
profitability of the concern. It is a fact that money generated money
sufficient fund will have to be invested in order to increases profitability.
d) Maximizing concern value:
Finance function also
aims at maximizing the value of the firm usually a concerns value is linked