Finance Management

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Finance ManagementIntroduction

We need to assemble five ‘M’ Money is most vital which also affect the arrangement other 4 ‘M’.

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5 MMoney

Material

Men Methods Machines

This learning object will emphasize the importance and management of money which also known as finance.

Finance Management

It is the art and science of managing money

The most essential requirement of any organized business or activity

The process of procuring and judicious use of resources with a view to

maximize the value of the firm

Interdependence with other areas of management

What is finance management…….

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Finance ManagementTypes of Capital

Fixed capital It is required to meet the expenses on fixed assets, like land, building,

machinery, etc. Long term finance is to be arranged to meet the fixed capital requirement. It

may be arranged from owned capital as well as from long term loans.

The Working capital is required to meet the day-by-day expenditure of an enterprise

e.g. expenditure on row material, labour, transportation, etc. Short term finance are arranged to meet the working capital requirement.

The short term finance is generally required for less than two years

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Finance Management

Budget

An important instrument of the financial management

used as aid in planning, programming and control

A budget may be defined as a financial and

quantitative statement, prepared and approved prior to

defined period of time, of the policy to be pursued

during that period for the purpose of achieving the

given objective.

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Finance Management

Budget: advantages

It is a tool for -

a) Quantitative expression of the planning

b) Evaluation of financial performance in accordance with plans

c) Controlling costs

d) Optimizing the use of resources

e) Directing the total efforts in to the most profitable channels

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Finance Management

Accounting

An art of recording , classifying and summarizing data in a significant

manner and interpreting the results

Data may be in form of money transactions and events which are, in part at

least , of a financial character

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Finance ManagementSources of Finance

Owned capital: Entrepreneurs used owned funds, personal or family resources and property, etc to

start business activities. Friends and relatives: Friend and relatives helps in establishment and management of an enterprise by

proving money to entrepreneur at no or very low interestCommercial banks: The Commercial banks are most important source of credits to set up large

varieties of business enterprise, big and small. The commercial banks provide short and long term loans to priority sectors.

National level financial institutions: Industrial Development Bank of India (IDBI), Small Industries Development Bank

of India (SIDBI), Industrial Finance Corporation of India (IFCI), National Bank for Agricultural and Rural Development (NABARD), etc. provide the financial assistance on term basis to establish the business projects. They also provide promotional, technical and managerial support to various new and existing business concerns.

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Finance Management

Regional Rural Banks (RRB): In order to support the agricultural and enterprise activities in

rural area, RRBs were established under commercial banks. The RRBs provides all types to credits in rural areas.

Cooperatives credit societies: Cooperatives societies are formed by the farmers, artisans,

industrial workers, etc. They provide credits at reasonably low interest rate to user members.

Indigenous banks: Entrepreneur can get the loan from private individuals known

as money lender. The rate of interest is very high.

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Sources of Finance (Contd…)

Finance Management

Rate of interest, repayment period, margin money requirement, processing charges and time period involved in sanctioning of loan, are very important point should be kept in view while selecting source of finance.

The banker / intuition should charge the lowest rate of interest, provide larger repayment period, require minimum contribution as margin from the entrepreneur, charge lowest processing fee and take minimum time in sanctioning the loan.

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Selection of source of finance

Finance ManagementLet Us Sum Up

A business entrepreneur needs to arrange the finance to set up a new enterprise or to modernise and expand the already set up unit.

Owned capital can be contributed out of personal family deposit and property. The borrowed captain can be arranged from various commercial banks, cooperative banks, indigenous lender, friends and relatives, special financial institutions like IDBI, SIDBI, etc. The financial required can be divided into two types namely short term and long term credits.

Short term credits are required to meet the working capital requirement and the long term loan are required to meet the capital investment.

The source of finance should be selected properly after considering the rate of interest; margin requirement; repayment period; processing charges; and time and documents requirements in sanctioning the loan

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