options for issuing shares and debentures; loans from banks and other financial institutions and bonds issuance. The executive has to decide on how funds shall be invested: (1) allocating funds into profitable ventures taking into account safety on investment and regular returns, if possible, (2) making net profits decisions including dividend declaration and retained profits allocation for expansion, innovation or diversification. (3) Management of cash taking into account the availability of cash for paying salaries, utilities, meeting current liabilities, purchase of raw materials, or other activities requirement immediate cash on hand, (4) Exercise control over finances: (5) Ratio analysis, cost and profit control, and financial forecasting, company plans, This needs period; and to identify re It is unwise te nventories and o se, will lose op, funds. Idle cash | much receivables risk for bad debts crease handling property and equi gives the company depreciation. FUNCTIONS OF BUSINESS FINANCE . a ROLES OF FINAI Business finance is both an art and a science with allocating the financial resources of t Procurement of funds needed; and the efficient utilization of these funds. It is concerned he company; and effective Financial man Management. This that is, to acquire tl used effectively, in s bean independente financial manageme n larger companie described as the fi ‘volved in making fir responsible for the responsible for its ac 'n allocating financial resources, it is important that funds are channelled to activities that are profitable or costs are minimal Possible risks are losses which may arise from decline in revenue, protease in operating costs and expenses or decline in property value, Procurement of funds requires that capital sourcing must be done at the least cost possible. This involves evaluation of the different Sources of funds and the costs involved. Sources available can be short-term and long-term funds. Cost of capital maybe in the form of financing charges, such as interest, service charges. For capital contribution of owners, costs are the dividends or shares in proft of the stockholders. For the efficient utilization, funds must be used for purposes which they are intended. Unnecessary expenses, unproductive labor, so much investment in fixed assets may involve inefficiency in utilizing resources. Effective use of resources require Periodic assessment of operations if they are consistent with the In large corporati directly involved in m to-day basis. Inste represent the own ehalf. The financial with a top officer of t 2r some other chief ‘48 BASIC BUSINESS FINANCE: Management Approachde tion for e minimal. n revenue e different ble can be in the form For capital mpany plans, in attaining its short-term and long-term goals. This needs periodic review of operations to check on developments and to identify remedial or corrective actions when necessary. It is unwise to have excessive balance of cash, receivables, nventories and other financial resources. The company, in this case, will lose opportunities to earn on capital tied up or on idle funds. Idle cash may be invested in short-term placement. Too can lead to more collection costs and greater risk for bad debts. Inventories, beyond what is in demand, may increase handling and storage costs, or obsolescence. Plant, Property and equipment, more than what the company needs, gives the company more expenses for repairs, maintenance and depreciation ROLES OF FINANCIAL MANAGERS Financial managers have a major role in a company’s management. This role is essentially the same in all compani that is, to acquire the necessary funds and to ensure that they are used effectively. In some companies, the financial manager may not. be an independent employee, particularly for small companies where ‘inancial management may be done by the secretary or accountant. n larger companies, this function may be done by executives described as the financial managers. These are people directly nvolved in making financial decisions. Most of the time, the executive responsible for the financial management of the company is also esponsible for its accounting functions. In large corporations, the owners or stockholders are usually not irectly involved in making business decisions, particularly on a day ‘0-day basis. Instead, the corporation employs managers to resent the owners’ interests and make decisions on their ehalf. The financial management function is usually associated ith a top officer of the firm, such as the vice-president for finance r some other chief financial officer or CFO. INTRODUCTION TO BUSINESS FINANCE 499. 10. Development and implementation of financial policies. ‘According to Peirson (p.9), top ten major roles of Financial ‘Managers are: a ‘Stephen Ross (p.4) identified three decisions made by Financial Managers: Managing investment in non-current assets through evaluation of capital projects. Evaluating, obtaining and servicing long-term financial requirements through borrowing, leasing, retaining funds or issuing stocks and securities. Distribution of dividends to shareholders. Collection and custody of cash and payment of bills. Managing investments in current assets such as cash, marketable securities and inventory. Obtaining and servicing short-term finance. Managing risks associated with changes in interest rates and exchange rates, Assessing the viability of growth through acquisition of other businesses. Planning the future development of the business. Capital budgeting. This concerns the planning and managing of the firm’s long-term investments. The financial manager tries to identify investment opportunities that are worth more. to the firm that the cost to acquire. Types of investment: opportunities depend on the nature of the firm’s business. For example, for a large retailer. Deciding whether or not to open another store would be an important capital budgeting decision. Regardless of the specific nature of an opportunity under consideration, financial managers i 50 BASIC BUSINESS FINANCE: Management Approach‘must be concerned not only with how much cash they expect to receive, but also with when they expect to receive it and how likely they are to receive it. Evaluating the size, timing, and risk of future cash flows is the essence of capital budgeting. Capital structuring. This evaluates ways in which the firm obtains and manages the long-term financing to support its long-term investments. The firm's capital structure or financial structure is the specific mixture of long-term debt and equity the firm uses to finance its operations. Financial manager's concerns are: how much should the firm borrow? And what combination of debt and equity is best? It determines what part of the pie, or the firm's cash flow goes to creditors and what part goes to shareholders. Also, the officer should decide exactly how and where to raise the money. The expenses associated with raising long- term financials can be considerable, so different Possibilities must be carefully evaluated. Corporations borrow money from a variety of lenders in different ways, thus choosing among available creditors and loan types is another significant factor in financial decisions, Working capital management. This refers to the administration of the firm's short-term assets, including inventory, its short-term liabilities - such as money owed to suppliers. Managing the firm’s working capital is a day- to-day activity that ensures that the company has sufficient resources to continue its operations. Questions and issues are: how much cash and inventory should be kept on hand? should the firm sell on credit? what are the terms? should the firm buy on credit? or borrow on short term and pay cash? INTRODUCTION TO BUSINESS FINANCE 51