SLIDE 3

Business is an economic system, in which goods and services are exchanged for one
another or for monez, on the basis of their preceived worth

Investment and customers> Every business requires some form of invesment and a
sufficient number of customer to whom its output could be sold at a profit on a
consistent basis

Significance of finance: A business cannot function, unless adequate funds are

made available at its disposal, the need for funds for a business arises right from
the stage of inception.

The initial capital contributed by the entrepreneur, may not always be sufficient to
take care of all financial requirements of a business. Besides, finance is also
required fo day to day functioning

A businessman, therefore, has to look for various other sources of finance

A clear assessment of the financial needs and the identification of various sources
of finance, therefore, is a significant aspect of running a business organization.

SLIDE 4
Money is needed to finance the purchase of assets, materials and employing
people. It is also required for day to day functioning of business.
There is a gestation period, before the business generates enough cash from sales
to pay for these costs.
Business requires investment in technology with the passage of time. It helps in
taking advantage of low cost of production to keep up with new entrants as well as
its competitors.
Survival of the fittest is the rule of business
There is a constant flow of new entrants as well as new products in the market
Up gradation of existing products as well as research for the development of new
products involves huge financial investment for the business.

A constant lookout for new markets to tap the economies of scale is a prerequisite
to survival in todays economy. How? By covering a wider geographical area,
building a new customer base ...

SLIDE 5
During its expansion stage it may become necessary for a business to takeover the
reigns of an existing business, it helps to expand its customer base in a new area. =
acquisition

A business has many calls on its cash on a day to day basis. These include: Making
payment to suppliers for raw materials, payment of wages and salaries,
trasportation of goods from factory to sales outlets, printing and stationery etc. Just
to name a few.

Fixed capital refers to assets or capital investments, which are needed to start up
and conduct business, even at a minimal stage. These assets are considered fixed
by nature, because they are not used up in the acutal production of a good or
service, but have a reusable value.

Fixed capital investments are typically depreciated on the companys accounting

statements over a long period of time, up to 20 years or more. E.g. Factories, office
buildings, coputer servers, manufacturing equipment etc.

The amount of fixed capital needed to set up a business varies from industry to
industry. Industrial manufactureres, telecommunications providers and oil
exporation firms require high investments, against this, a trading concern may not.

SLIDE 6
(net) working capital is the capital needed for day-to-day operations of a business. It
consists of those assets which are either in the form of cash or can easily be
converted into cash, e.g. Cash and bank balances, debtors, bills receivable, stock,
etc.
Positive WC means that the company is able to pay off its short-term liabilities x
negative WC means that a company currently is unable to meet its short-term
liabilities with its current assets (cash, accounts receivable and inventory).
A declining working capital ration over a longer time period could also be a red flag
that warrants further analysis.

A part of WC is required at all times to maintain minimum level of stock and cash to
pay wages and salaries, this part of WC is called permanent WC.

SLIDE 7: The requirement for fixed and working capital increases with the growth
and expansion of a business. At times additional funds are required for upgrading
the technology employed so that the cost of production or operations can be
reduced. Similarly, they may be required for building higher inventories for
upcoming season, to shift business to a new location.
Where can you raise the funds?
Short = less than a year, medium = 1 5 years, long term = more than five years
Other purchases: S: payment of wages, rent, insurance; M: ronavation, heavy
advertising, L: plant and machineries;
Other sources: S: loans from commercial banks and partners, M: public deosits,
lease financing and loans from financial institutions; L: long-term borrowings, loans
from financial institutions.

SLIDE 9: Urgency of requirement is one of the factors affecting the choice of

finance. It also affects the cost for procuring.
Cost of finance is normally measured in terms of the extra money that needs to be
paid to secure the initial amount, interest payable is one of them. The cheapest
form of money to a business comes from its retained earnings.
Unless there is some sort of guarantee, projects with a higher risk factor find it
difficult t oraise fund from external sources.
Duration for requirement of finance: to correctly judge the time frame for which
additional requirement of finance is necessary is crucial, based on calculation.
Venture capital is money provided by investors to start-up firms and small
businesses with perceived long-term growth potential; known as a kind of risk
capital because of the element of risk relating to the future creation of profits and
cash flow.

SLIDE 11: Finance and accounting are not the same thing.
Accounting is concerned with financial record keeping, the production of periodic
reports, statements and analyses; dissemination of information to managers and, to
some extent, to investors and the world outside the business; by output, quality,
relevance and timeliness of its information is important
Finance is decision making, relies heavily on accounting reports as a database,
knowledge of past events may well be a good pointer to the future, however, the

role of a financial manager is not to provide information but use a portfolio of

managment skills.

Question:
Name any Financial managers skills collating, preparing and interpreting reports, budgets, accounts,
commentaries and financial statements
undertaking strategic analysis and assisting with strategic planning
producing long-term business plans
undertaking research into pricing, competitors and factors affecting
performance
controlling income, cash flow and expenditure
managing budgets
developing and managing financial systems/models
carrying out business modelling and risk assessments
supervising staff
liaising with managerial staff and other colleagues.