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MANAGING THE

FINANCE

FUNCTION

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FINANCE FUNCTION

Important management responsibility

Procurement and administration of funds with the iew

of achieing the ob!ecties of business

One of the three basic management functions

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T"E FINANCE FUNCTION# A P$OCE%% F&O'

(eterminationof Fund

re)uirements

Procurementof funds

Effectie andefficient use of

fund

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T"E (ETE$*INATION OF FUN( $E+UI$E*ENT%

To finance daily operations

To finance the firm,s credit serices

To finance the purchase of inentory

To finance the purchase of ma!or assets

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Cash sales

Collection of accounts receiables

&oans and credits

%ale of assets

Ownership contribution

Adances from customers

T"E %OU$CE% OF FUN(%

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%"O$T TE$* %OU$CE% OF FUN(%

Advantages DisadvantagesSupplies of short-term

funds

Easier to obtain *ature more fre)uently Trade creditors

Often less costly *ore costly Commercial ban-s

Offers fle.ibility to borrowers Commercial paper houses

Finance companies

Factors

Insurance companies

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&ON/ TE$* %OU$CE% OF FUN(%

&ong term debts

Term loans

bonds

Common stoc-s

$etained earnings

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A(0ANTA/E% OF TE$* &OAN%

Funds can be generated more )uic-ly than other long1

term sources

They are fle.ible

The cost of issuance is low compared to other long1term sources

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T2PE% OF 3ON(%

Type of Bond Feature

(ebentures No collateral re)uirement

*ortgage bond %ecured by real estate

Collateral trust bond%ecured by stoc-s and bonds owned by the

issuing corporation

/uaranteed bondPayment of interest or principal is guaranteed

by one or more indiiduals or corporations

%ubordinated debentures 'ith an inferior claim oer other debts

Conertible bonds Conertible into shares of common stoc-

3onds with warrants'arrants are options which permit the holder

to buy stoc- of the issuing company at astated price

Income bonds Pays interest only when earned

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3E%T %OU$CE% OF FINANCIN/

Fle.ibility

$is-

Income

Control

Timing

Other factors

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T"E FI$*,% FINANCIA& "EA&T"

To ma-e profits for the owners

To satisfy creditors with the repayment of loans plus

interest

To maintain the iability of the firm

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IN(ICATO$% OF FINANCIA& "EA&T"

3alance sheet

Income statement

%tatement of changes in financial position

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$I%4 *ANA/E*ENT AN( IN%U$ANCE

$is-s refers to the uncertainty concerning loss or in!ury

Fire

Theft

Floods Accidents

Nonpayment of bills by customers

(isability and death

(amage claim from other parties

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T2PE% OF $I%4

Pure

%peculatie

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$I%4 *ANA/E*ENT

And organi5ed strategy for protecting and consering

assets and people

The purpose is to choose intelligently from among all

the aailable methods of dealing with ris- in order tosecure the economic surial of the firm

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*ET"O(% OF (EA&IN/ 'IT" $I%4

The ris- may be aoided

The ris- may be retained

The ha5ard may be reduced

The losses may be reduced

The ris- may be shifted

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Prepared by#

$A&P" N6 3U(ION/AN

$A&P" E$'IN P6 CA$(O%OANA 7EAN *6 CA3$I/A%

THANKYOU!