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Managing the Finance Function Group 12

The document outlines the finance function as a critical management responsibility focused on fund procurement and administration to achieve business objectives. It discusses the determination of fund requirements, sources of funds, and the importance of financial health indicators, risk management, and insurance. Additionally, it categorizes risks into pure and speculative types, emphasizing the need for effective risk management strategies.
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0% found this document useful (0 votes)
14 views17 pages

Managing the Finance Function Group 12

The document outlines the finance function as a critical management responsibility focused on fund procurement and administration to achieve business objectives. It discusses the determination of fund requirements, sources of funds, and the importance of financial health indicators, risk management, and insurance. Additionally, it categorizes risks into pure and speculative types, emphasizing the need for effective risk management strategies.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Minimalist

Architecture 101
There's beauty in simplicity.

MANAGING THE FINANCE


FUNCTION
WHAT FINANCE FUNCTION IS?

Finance Function is an important


management responsibility that deals
with the “procurement and
administration of funds with the view of
achieving the objective of business.
the finance function is one of the three
basic management functions. the other
two are production and marketing.
determination 1. short term
of fund 2. long term
requirements

procurement 1. short term


of 2. long term
funds

effective
and 1. short term
efficient
use of 2. long term
funds
topics about managing the
finance FUNTION

the determination of fund requirements


sources of funds
the best source of financing
the firms financial health
indicators of financial firms
risk management and ensurance
the
determination
of fund
requirements
Any organization, including the engineering firm,
will need funds for the following specific
requirements:
1. To finance daily operations
2. To finance the firm’s credit services
3. To finance the purchase of inventory
4. To finance the purchase of major assets
financing daily operations financing the firm’s credit services
The day-to-day operation of the engineering It is often time unavoidable for firms
firm will required funds to take care of to extend credit to customers. If the
expenses as they come. Money must be made engineering firm manufactures
available for the payment of the following.
products, sale terms may vary from
1. wages and salaries
cash to 90-day credit extension to
2. rent
3. taxes customers. Construction firms will have
4. power and light to finance the construction of
5. marketing expenses government projects that will be paid
6. administrative expenses many months later.
financing the purchase of financing the purchase of
inventory major asset

A finance option businesses


A short-term loan or a revolving can use to grow by acquiring much
line of credit that is acquired by a needed equipment, such as vehicle
fleets, farm machinery and even
company so it can purchase
aircrafts. You pay a regular amount
products to sell at a later date to use the asset over an agreed
period, avoiding the full cost of
buying outright.
the sources of funds
To finance its various activities, the engineering
firm will have to make use of its cash inflows
coming from various sources, namely:
1. cash sales
2. collection of accounts receivables
3. loans and credits
4. sale of assets
5. ownership contribution
short-term sources of funds
6. advances from customers Funds which are required for a period not
exceeding one year are called short-term sources.
Advantages of short- Disadvantages of
term credits short-term credits
Easier to obtain Short-term credits mature
Short-term financing more frequently.
is often less costly Short-term debts may, at
Offers flexibility to times be more costly than
the borrower long term credits
Supplies of Short-Term Funds

Trade Creditors Commercial Banks Commercial paper houses


a supplier who has sent provide financial services to
helps business firms in
your business goods, or the general public and also
provide loan facilities to the borrowing funds from the
supplied it with services,
business which helps in money market.
who you haven't yet paid ensuring economic stability
and growth of the economy.

Business Finance Company Factors Insurance Company


a financial institutions that an institutions that buy a possible sources of short-
finance inventory and the accounts receivables term funds. It creates insurance
equipment of almost all of firms, assuming products to take on risks in
types and sizes of business complete accounting and return for the payment of
firms. collection responsibilities. premiums.
Long-Term Source of Funds
Long-term sources of funds are classified as:
1. LONG-TERM DEBTS
2. COMMON STOCKS, AND
3. RETAINED EARNINGS
Long-term debts are sub-classified into term loans and bonds
Term Loans. A term loan is a commercial or industrial loan from a commercial bank,
commonly used for plant and equioment, working capital, or debt repayment.
Bonds. A bond is a certificate of indebtedness issued by a corporation to a lender. It is a
marketable security that the firms sells to raise a funds.
Common Stocks. A mutual fund that invests in the common stock of numerous publicity
traded companies. It provide investment diversification and offer time savings.
Retained Earnings. Also refers to corporate earnings not paid out as dividends. It is a
portion of a company’s profit that is held or retained from net income at the end of the
reporting period
THE BEST SOURCE OF The firms financial
FINANCING health
To determine the best In general, the objectives of engineering firms
source, Schall and Haley are as follows:
recommends that the to make profits for the owners;
to satisfy creditors with the repayment of
following must be cosidered:
loans plus interest;
1. Flexibility
to maintain the viability of the firm so that
2. Risk
customers will be assured of a continuous
3. Income supply of products or services, employees
4. Control will be assured of employment, suppliers
5. Timing will be assured of market, etc.
6. Other factors like
collateral values, flotation
costs, speedn adn
exposure.
indicators of financial
health
The financial health of an engineering firm may be determined with the
use of three basic financial statements. These are as follows:

Balance sheet - also called statements of financial


position;
Income statement - also called statement of
operators
Statement of changes in financial position
Risk management and insurance

The importance of knowing the risk management by the engineer managers because it
helps them to calculate the uncertainties and also predict their impact, consequently giving
organizations a basis upon which they can make decisions. It prepares the organization
for the unexpected by mitigating or minimizing the impacts of the risk even before it occurs
by “acting proactively rather than reactivity.”

DEFINE RISK.
Risk is the possibility of something bad happening. Risk involves uncertainty about
the effects/implications of the activity with the respect to something that human value such
as( health, well-being, wealth, property and environment).
Risk management and insurance
Risk may be classified as:
pure risk
Speculative

pure risk
is one which “there is only a chance of lost”. It means there is no
opportunities for gain or profit when a pure risks involve. Generally,
prevalent in situations such as natural disasters, fires or death.

speculative risk
speculative risk on other hand, is one where there is a chance of
both loss or gain. It is a category of that can be taken on
voluntarily and will either result in a profit or loss. All speculative
risks are undertaken as a result of a conscious choice.
WHAT IS RISK MANAGEMENT?
RISK MANAGEMENT is an organized strategy in
protecting and conserving the assets of people. Risk
management is known as detecting, analyzing, and
prioritizing risks to limit or eliminate their negative
influence on the project.

Risk Management is designed with pure risk, while


the application of sound management practices
are directed towards speculative risk that are
inherent and cannot be avoided.

Methods of Dealing with risk


1. the risk may be avoided
2. the risk may be retained
3. the hazard may be reduced
4. the losses may be reduced
5. the risk may be shifted
RISK AVOIDANCE RISK RETENTION HAZARDS LOSS REDUCTION
is the elimination of Losses occurs in the
is the acknowledgement may be Reduced by
hazards or lost it is a sprite of any preventive
and acceptance of the simply instituting
method for mitigating measures, the severity
risk as given. It is a appropriate measures in
the risk by not of lose may be limited by
method of handling risk a variety of business
participating in the way of reaching
activities that could
wherein the management activities. It may occurs concentration of
harm. assumes the risk. in the work place. exposure.
Examples of efforts on loss reduction.

1. Physically separating buildings to minimize loses in case of fire.


2. Using fireproof materials on interior building construction.
3. Using inventory in several locations to minimize in case of fire and theft.

Purchasing insurance against property losses, using derivatives such as options or futures
to offset losses in underlying investment assets, or opening new foreign exchange positions to
limit losses from fluctuations in existing currency holdings while retaining some upside
potential are all examples of hedging.

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