1Business finance

Business finance is the practice of using the information in company

financial statements to make strategic decisions.

Meaning:
Business finance refers to money and credit employed in business. It
involves procurement and utilization of funds so that business firms may
be able to carry out their operations effectively and efficiently.

Financial Planning and Control: Any business firm must manage and
make their financial analysis and planning. To make these plannings and
management, the financial manager must have knowledge about the
present financial situation of the firm. On the basis of these information,
he/she regulates the plans and managing strategies for future financial
situation of the firm with in different economic scenario. Financial budget
also relies in these financial plans. Financial budget serves as the basis of
control over financial plans. The firms on the basis of budget, finds out the
deviation between the plan and the performance and tries to correct them.
Hence, business finance consists of financial planning and control.
Scope:
1. Financial Planning and Control: Any business firm must manage
and make their financial analysis and planning. To make these
plannings and management, the financial manager must have
knowledge about the present financial situation of the firm. On the
basis of these information, he/she regulates the plans and managing
strategies for future financial situation of the firm with in different
economic scenario. Financial budget also relies in these financial
plans. Financial budget serves as the basis of control over financial
plans. The firms on the basis of budget, finds out the deviation
between the plan and the performance and tries to correct them.
Hence, business finance consists of financial planning and control.

2. Financial Statement Analysis: Another scope of business finance is

to analyses the financial statements. However, it also analyses the
financial situations and problems that arises in the promotion of the
business firm. This statements consists the financial aspect related to
the promotion of new business, administrative difficulties in the way
of expansion, necessary adjustments for the rehabilitation of the firm
in difficulties.

3. Working Capital Management: The financial decision making that

relates to current assets or short-term assets is known as working
capital management. Short-term survival is a prerequisite of long
term success and this is the important factor in business. Therefore
the current assets should be efficiently managed so that the business
won't suffer any inadequate or unnecessary funds locked up in future.
this aspect implies that the individual current assets such as cash,
receivable and inventory should be very efficiently managed. Hence,
the efficiency in the management of working capital ensures the
balance between liquidity and profitability.

4. Capital Building: Financial decision making related to long-term

assets is known as capital budgeting or long-term investment
 decision. This scope s related tot eh selection of an investment
proposal out of the many related alternatives available to the firm.
However, the acceptance of the proposal depends on the returns
associated with that particular proposal.Here, the capital budgeting
technique measures the worth of the investment proposal. This
technique studies the method of appraising investment proposals. It
also analysis the risk and uncertainty, as the returns from the
investment proposal extends into the future. All the returns are
evaluated in relation to the risk.

5. Management of Financing: Managing financing is yet another

important area of business finance. The management of finance is
concerned with the mix of assets or structure of the assets of the firm.
As the firm should always pay special attention to it's assets. The
firm should properly mix the ratio of debt and equity capital while
main investment. As capital structure is the ratio of debt and equity
capital. Now, the capital structure consisting of the proper ratio of
debt and equity is known as optimum capital structure. Hence, the
financial manager should make decision regarding optimum capital
structure and the ratio of fund to be raised to maximize the returns for
the shareholders.

6. Dividend Management: Business finance also analyses the policies

regarding the dividend, depreciation and reserve. every dividend
decisions are made on the basis of financing decision of the firm. The
firm should decide, how much of profit should be distributed among
shareholders as dividend and how much should be retained as
earnings. This decision depends on the priority of the shareholders
and the investment opportunities available to the firm. Here, the
financial manager should develop a sound dividend policy.
Objectives:

Setting goals and objectives is vital for any entrepreneur overseeing a new,
growing company. Business owners set different types of objectives,
including financial objectives, to give them a solid plan for moving in the
direction of long-term success. Common financial business objectives
include increasing revenue, increasing profit margins, retrenching in times
of hardship and earning a return on investment.

Revenue Growth
Increasing revenue is the most basic and fundamental financial objective
of any business. Revenue growth comes from an emphasis on sales and
marketing activities, and is solely concerned with increasing top-line
earnings – earnings before expenses. Companies often set revenue goals in
terms of percentage increases rather than aiming for specific dollar
amounts. An entrepreneur may set an objective of increasing revenue by
20 percent each year for the first five years of a new company's operations,
for example.

Profit Margins
Profit objectives are a bit more sophisticated than revenue growth goals.
Any money left over from sales revenue after all expenses have been paid
is considered profit. Profit, or bottom-line earnings, can be used in a
number of ways, including investing it back into the business for
expansion and distributing it among employees in a profit-sharing
arrangement.
Profit goals are concerned first with revenue, then with costs. Keeping
costs low by finding and building relationships with reliable suppliers,
designing operations with an eye toward lean efficiency and taking
advantage of economies of scale, to name a few methods, can leave you
with more money after paying all of your bills.

Sustainability
At certain times, companies or brands may be primarily concerned with
basic economic survival. Retrenching is a marketing technique – based on
a financial objective – that attempts to keep a brand alive and keep current
revenue and profit levels from falling any further during the “decline”
stage of the product/brand life cycle.
Companies may be concerned with financial sustainability during periods
of economic turmoil, as well. Common financial objectives for survival
include collecting on all outstanding debts on time and in full, de-
leveraging by paying off debt and keeping income levels consistent.

Return on Investment
Return on Investment is a financial ratio applied to capital expenditures.
ROI can be applied to two basic scenarios. First, ROI is concerned with
the return generated by investments in real property and productive
equipment. Business owners want to make sure that the buildings,
machinery and other equipment they buy generates sufficient revenue and
profit to justify the purchase cost.
Secondly, ROI applies to investments in stocks, bonds and other
investment instruments. The same principle applies to these investments,
but there is generally no physical, productive asset used to generate a
return. Instead, ROI for investment products is calculated by comparing
the dividends, interest and capital gains realized from investments by the
cost of the investment and the opportunity cost of forgoing alternative
investments.

Objectives of Financial Management

• Profit maximization happens when marginal cost is equal to marginal
revenue. This is the main objective of Financial Management.
• Wealth maximization means maximization of shareholders' wealth. It
is an advanced goal compared to profit maximization.[2]
• Survival of company is an important consideration when the financial
manager makes any financial decisions. One incorrect decision may
lead company to be bankrupt.
• Maintaining proper cash flow is a short run objective of financial
management. It is necessary for operations to pay the day-to-day
 expenses e.g. raw material, electricity bills, wages, rent etc. A good
cash flow ensures the survival of company.
• Minimization on capital cost in financial management can help
operations gain more profit.
• It is vague :- There are several types of profits before interest,
depreciation and taxes, profit before taxes, profit after taxes, cash
profit etc
Finnancial forcastiong:
A financial forecast is a fiscal management tool that presents estimated
information based on past, current, and projected financial conditions.
This will help identify future revenue and expenditure trends that may
have an immediate or long-term influence on government policies,
strategic goals, or community services.
Financial planning and its steps: