Overview of the Finance Function in Organisations

By: R.C.Mukherjee Sr.Faculty Member, PMI

The Role of the Finance Function in Organisations

The Human Body An Organisation Management Information System Operation & Maintenance System The Finance Function

Nervous System
Digestive System Circulatory System Excretory System

Waste & Environment Management System

What is Financial Management?

The goal of financial management is to maximise the wealth of its current shareholders.It involves taking decisions on the following: What capital investments to make on real estate,machineries, and equipment
Capital Budgeting

1.

2.

Where will you raise the money to pay for the proposed capital investment-i.e., what is the mix of debt and equity in the financing plan?
Capital Structure

3.

How will you handle the financing of operations

day-to-day

Working Capital Management

What is Capital Budgeting?

It involves taking decision on allocating funds to project land, buildings, machineries, equipment, research & development, godowns, showrooms, distribution network, Information infrastructure, brands and other long-term assets so as to maximise the return on investment. Three techniques are used to evaluate competing projects: 1. Payback Period 2. Net Present Value 3. Internal Rate of Return

What is Capital Structure?

It involves taking decisions on the following issues: What is the optimal debt-equity ratio for the firm? Which specific instruments of equity and debt financing should the firm employ?

Which capital markets should the firm access?

When should the firm raise finances? At what price should the firm offer its securities?

Capital structure decisions should be guided by

considerations of cost and flexibility.The objective should be to minimise the cost of financing.

It is short-term financial management of

What is Working Capital Management?

Securities & Cash/Bank Balances)

Current Assets (Inventories, Debtors, Marketable & Current Liabilities (Short-term Debt, Creditors) What is the optimal level of inventory? Should the firm grant credit to its customers?

The key questions in working capital management are:

How much cash should the firm carry?

Where should the firm invest its cash surplus? Wherefrom should the firm raise short-term loans?

Financial management is an integral part of the jobs of managers who are involved in planning, allocation of resources, and control. The responsibilities for financial management are dispersed throughout the organisation:

Organisation of the Finance Function

The engineer who proposes a new plant shapes the

investment policy The marketing analyst provides inputs for forecasting & planning The purchase manager influences inventory levels

However,

Organisation of the Finance Function - contd.

there are special are tasks of which attended

financial by

management

to

CAs/ICWAs/MBAs

Treasurer Obtaining Finance Banking Relationship

Financial Controller Financial Accounting Internal Auditing

Cash Management Credit Administration

Capital Budgeting

Taxation Management Accounting and Control