Meaning Of Business Finance

1. Meaning of Business Finance
Business Finance is that business activity
which is concerned with the acquisition and
conservation of capital funds in meeting
financial needs and overall objectives of
business enterprises.

2. What is Financial Management?
•Financial Management is broadly concerned
with the acquisition and use of funds by a
business firm. Its scope may be defined in terms
of the following questions.
•How large should the firm be and how fast
should it grow?
•What should be the composition of the firm’s
assets?
•What should be the mix of the firm’s financing ?
•How should the firm analyze, plan and control its
financial affairs

3. Financial Decisions
Investment
Decision
Dividend
Decision
Financing
Decision
Capital Budgeting
Cost of capital
Working Capital
Management
Capital Structure

4. SCOPE AND FUNCTIONS OF
FINANCIAL MANAGEMENT
•Traditional Approach
•Modern Approach

5. Traditional Approach
•The traditional approach, which was popular in the early
stage, limited the role of financial management to raising
and administering of funds needed by the corporate
enterprises to meet their financial needs. It deals with the
following aspects.
•Arrangement of funds from financial institutions
•Arrangement of funds through financial instruments like
share, bonds etc/.
•Looking after the legal and accounting relationship
between a corporation and its sources of funds.

6. Main limitations of Traditional
Approach
•Outsider-looking-in-approach
•Ignored routine problems
•Ignored non-corporate enterprise.
•Ignored working capital financing
•No Emphasis on allocation of funds
•Time value of money is not considered

7. Modern Approach
•According to modern approach the term financial
management provides a conceptual and
analytical framework for financial decision-
making. That means, the finance function covers
both acquisition of funds as well as their
allocation.
•The new approach views the term financial
management in a broader sense. It is viewed as
an integral part of over-all management.

8. Financial management, in the
modern sense of the term, divided
into four major decisions
•The investment decision
•The financing decision
•The dividend policy decision
•The funds requirement decision.

9. OBJECTIVE OF FINANCIAL
MANAGEMENT
•Profit Maximization
•Wealth Maximization
•Economic Value Added
•Focus on stakeholders

10. Drawbacks of Profit maximization
•Ambiguity
•Timing of benefits
•Quality of benefits

11. Wealth Maximization
•Maximizes the net present value of a
course of action to shareholders.
•Accounts for the timing and risk of the
expected benefits.
•Benefits are measured in terms of cash
flows.
•Fundamental objective—maximize the
market value of the firm’s shares.