Give some examples of Functions of Finance?
Determination of the financial requirements of the firm, obtaining necessary finance from the necessary sources at minimum possible cost & allocation of finance in different assets. In simple terms the finance fuinctions are raising of funds, planning for funds and allocation & control of funds.
What do you mean by profit maximization?
Profit maximization is the indicator of economic efficiency. It includes measurement of success of business decisions. It is also a source of incentives.
Is there any difference between a finance manager and treasurer?
The major functions of a a treasurer are management of Cash, Management of Credit , Management of pensions and overlooking the banking transactions. He is subordinate to finance manager in big firms however the finance manager may perform the duty of a treasurer in small firms or vice versa.
What kind of decisions a Finance Manager has to make in a firm?
The main decision is financial analysis & performance appraisal, making financing decisions, Investing decisions and dividend decisions. He plays an important role in Financial Control, Dividend Decisions, Management of Income and Financial analysis. Besides he also plays an important role in amalgamation, reconstruction, liquidation decisions, continuous audits, co-ordination in funds, preparation of cost account and maintaining adequate liquidity.
What does come under financial Control?
The financial control involves Accounting functions, control planning and audit and tax Administration apart from this.
What is the meaning of value in a business?
Value in simple means is a worth of an asset, security or a business. There are certain kinds of value like Market value, Intrinsic value, Liquidation value, replacement value etc.
What is market value?
Market value is the price which is present in market. It is different from intrinsic value which is a synonym to net Assets, Liquidation value is the value at wind up and Salvage value is the scrap value.
Can you give some examples of all these?
Yes, For example any price given in a price list or a quotation is a market value, any price which is realizable for any asset is liquidation value. If the same asset has to be replaced with a new asset then it becomes the replacement value, and lastly the cost incurred in removing the asset from the premises is called Scrap value.
Ok, on what does this value imply upon?
The value may imply upon valuation of a plant, machinery, intangible assets of the firm like Goodwill, Tangible assets like Stock and even human resources.
Ok then what is Fair value?
Fair value is an average of market value and book value. Book value is the value given in the balance sheet of the company. Market value is the economic value which is also called as present value.
How valuations are done?
Valuation can be by several approaches. For example, asset based approach, earning based approach, market value based approach etc.
Suppose you are starting a business. Which kind of sources of finance you will require to start your business as you need working capital and current assets?
The arrangement of working capital and current assets can be done by short-term sources. The short term sources are trade credit, short term bank finance and also public deposits.
But suppose, you are given an option to go for either trade credit or Bank loans which option you will choose?, keep in mind that you are in a new business.
Trade credit is in most cases not available to new customers as it depends upon the intangible assets of the business like goodwill and brand. Besides, trade credit is also not advisable as high price is charged in credit purchases. Sometimes, low quality or inferior good are to be accepted.
Ok, then what are the other options?
Bank loans such as overdraft, cash credit, discounting of trade bills and loans and advances are options.