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SAI INTERNATIONAL SCHOOL

                                                       Class-12
                                                                   th
                                                  Business studies

                                       Chapter – 9, Financial Management

                                  Topics: Meaning, Role, Objectives, Financial decision
                                                      (lesson - 30)
               MEANING OF BUSINESS FINANCE


               Money  required  for  carrying  out  business  activities  is  called  business  finance.  Almost  all
               business activities require some finance. Finance is needed to establish a business, to run it, to
               modernize it, to expand, or diversify it. It is required for buying a variety of assets, which may be
               tangible  like  machinery,  factories,  buildings,  and  offices;  or  intangible  such  as  trademarks,
               patents, technical expertise, etc. Also, finance is central to running the day-to-day operations of
               business, like buying material, paying bills, salaries, collecting cash from customers, etc. needed
               at  every  stage  in  the  life  of  a  business  entity.  Availability  of  adequate  finance  is,  thus,  very
               crucial for the survival and growth of a business.


               FINANCIAL MANAGEMENT

               All finance comes at some cost. It is quite imperative that it needs to be carefully managed.
               Financial Management is concerned with optimal procurement as well as the usage of
               finance.

               For optimal procurement, different available sources of finance are identified and compared in
               terms of their costs and associated risks. Similarly, the finance so procured needs to be invested
               in a manner that the returns from the investment exceed the cost at which procurement has taken
               place.

               Financial Management aims at reducing the cost of funds procured, keeping the risk under
               control and achieving effective deployment of such funds. It also aims at ensuring availability of
               enough funds whenever required as well as avoiding idle finance. Needless to emphasize, the
               future of a business depends a great deal on the quality of its financial management.



               Importance /Role of Financial Management:

               The role of financial management cannot be overemphasized, since it has a direct bearing on the
               financial health of a business. The financial statements, such as Balance Sheet and Profit and
               Loss Account, reflect a firm’s financial position and its financial health.

               Almost all items in the financial statements of a business are affected directly or indirectly
               through some financial management decisions.

                Some prominent examples of the aspects being affected could be as under:
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