Business
finance: Business finance can be define as business finance studies effective
management and control of investing activities and financing activities of
business organization is order to achieve pre-determined goals. We can also say
that business finance looks at anything which has to do with money and
financial markets. Firstly we can say business finance study the management of
investing and financing activities of the organization. It involves balancing
risk and profitability.
Finance: Finance can be defined in different
ways, given as under;
1) Finance is the art and science of
managing money.
2) Finance means a science which
describe the money, resources, assets, credit banking and investment.
3) Finance studies anything which has to
do with the money resources and financial market.
Meaning Of Cash And Fund: We can define the cash and fund
given as under;
Cash: Cash can be define as cash means any
medium of exchange with bank will accept in customers accounts and creditors
will also accept for payment. Cash means any item which is accepted at its face
value for deposit by the bank in customers.
Fund: Fund can be define as fund means net
working capital individuals the total investment in current fund as well as it
explain law. These fund have been financed. Fund as a networking capital means
excess amount of current assets. Over current liabilities which is provided by
long term source of fund.
Source Of Business Finance: Sources of business finance are the
methods, ways and techniques through which financial manager funds for south
running of business, for to make investment in assets. Following are the main
sources of business finance.
Internal Sources: Internal sources means the amount of
fund which is generated by the firm itself from their operating activities is
caused internal sources of fund internal source of finance can be further
divided into two types;
a) Retained Earnings: The part of profit which is retained by the firm for further expansion
and investment in the business known as retained earnings.
b) Depreciation:
Depreciation is the amount which is set aside to cover wear and tear and
obsolescence fixed assets, each year over useful life of assets. Depreciation
is the internal source of finance because it is casa charges non casa charge
means it is not actual casa.
External Source: Amount of fund, which is provided by
(creditors our shareholders) to the firm in outside to meet its official needs.
The amount of fund which is obtained by the firm outside the organization.
External source includes.
Debt Capital: Amount of fund is provided by the
creditor the business firm known as debt capital.
1) Short term sources: It refers to the
borrowing fund for a period of one year or less than one year. Following are
its sources. E.g. trade credit, installment purchases, discounting of bills
etc.
2) Medium term sources: It refers to the
borrowing fund for a period of 1 year to 10 year. Following are its sources.
Commercial banks, insurance companies, T.F.C,S etc.
3) Long term sources: It refers to the
borrowing fund for a period of more then 10 year. They includes bonds payable,
debentures, leasing, financial institutions etc.
Equity Capital: Amount of fund which is provided by
the owner (shareholders) to the business firm with intension to participate
share in the profit of that firm. Equity capital has no maturity. It refers to
the obtaining of funds by using shares to general public. It includes two types
of financing.
a) Common Stock: Equity
capital cannot be obtained by issuing common stock in the market. For such
borrowing company is not bound to make payment such as interest etc.
b) Preferred Stock: Equity capital cannot also be obtaining by issuing preferred stock in
the market but for such borrowing. The company has to make payment as interest
at fixed rate. Preferred stock holders because they are not actual owner of
business as common stock holders are.
Conclusion: From the above discuss I concludes
that all the commercial bank, insurance companies and financial instatement
provides fund to the business organization for doing business.
Importance And Need Of Finance: Before 1776 the finance was not
important because methods of production were very simple and production was
labor intensive. But after industrial revolution the importance of finance
increased gradually and now- a days finance is much more important in every fund
or in every organization and business. Following are the main importance of
finance.
·
Importance For Smooth Running Of
Business: Finance
plays at important role in the smooth running of business. Many business
organizations failed. Simply due to unavailability of finance. The business
cannot run smoothly if finance is not available adequately ISO, finance is very
important for the smooth running of business.
·
Life Blood Of Business: Finance is life blood of any
business. Like human body who can’t live without blood. Similarly finance is
important for business. It is necessary before starting any kind of business.
·
Importance For Administration: Finance plays important role in the
administration of home, organization, corporation, firms and state etc.
required sufficient financial resources. i.e. if the financial position of the
business activities is good, then these can be easily administration.
·
Importance For Government: The government of a countries play a
major role in the economy life of its people, welfare and defense
of country
require a general amount of finance. So, any government which has a strong
financial position can easily reach to fulfill the above required.
·
Importance For Economic Activity: Every economic activity requires
four factors of product. The production of goods and services requires time and
money because the producer have to remuneration to the factors of production.
To meet this require he plays from his own resources or he has to take loan
from any financial organization.
·
Backbone Of Industrialization: Finance is the backbone of
industrialization. As a managerial of fact the marketing and production
involved fund. So again we can say that business start without fund. In other
words we can say that a firm have no money purchase raw material then how it
can produce anything.
·
Achieving Main Objectives: As we know that the main objective
of any business is to earn minimum project, finance is essential for achieving
the business objectives. It can be better explained in the words of scholar to
have money is to make more money. It means that with the help of more finance
business can achieve its main objectives.
·
Importance In Resources Management: It is necessary for efficient
resource management. Here resources include all capital and human resources. Because
maintenance of plant and equipment, training of employer, establishment of new
industrial units and expansion in plant capacity etc. (all need finance).
·
Bring Co-Ordination: Finance brings co-ordination among
different departments, i.e. marketing, production, sales etc. because if there
is no finance then there will no co-ordination nor the department because all
business run with finance.
·
Importance For Purchase Of Current
Assets: Finance is
important and needed to every firm for meeting its operating and running
expenses. Such as cash, inventory etc.
·
Importance For Purchase Of Fixed
Assets: Finance is
required to purchased fixed assets i.e. land, building, machinery etc. in
ordinary to expand existing firm.
·
Importance In Purchase Of Intangible
Assets: Finance is
also required to purchase copy write, good will etc.
Conclusion: From the above discussion, I
conclude that finance has a wide scope and importance in every field of life.
No issue can be done without firm. So we can say that firm is very important
and necessary every filled of life.