Subject: Business Finance

Assignment -1

1. Define the term Business Finance and explain its scope

Meaning of Business Finance

Business finance is the cornerstone of every organization. It refers

to the corpus of funds and credit employed in a business. Business
finance is required for purchasing assets, goods, raw materials
and for performing all other economic activities. Precisely, it is
required for running all the business operations.

To understand what business finance is, we must know that

business finance includes activities concerning the acquisition and
conservation of capital funds for meeting an organization’s
financial needs and objectives. The importance of business
finance is evident from the fact that business finance is required
to undertake every business operation successfully.

The amount of capital that is pooled by a business owner into

their company is often not enough to meet the financial needs of a
company. Herein, the importance of business finance and its
management rises even more. Consequently, business owners
along with their teams look out for various other ways to generate
funds.

A business may require additional funds for anything ranging

from buying plant or apparatus, raw materials or further
development. Different types of business finance are:

 Fixed Capital
 Working Capital
 Diversification
 Technology upgrading
Importance of Business Finance

Here are some reasons why business finance is important for all
organizations:

Maximization of wealth

Business finance ensures that a shareholder’s wealth is

maximized. It is also important to understand that wealth
maximization is different from profit maximization. Wealth
maximization is holistic and ensures the growth of an
organization.

Ensure constant availability of money

For any business to survive, it should be in optimum financial

condition. This includes the availability of funds at the time they
are needed. Unless there are enough funds, the business may not
be able to function properly.

Attaining optimum capital structure

This requires a perfect combination of shares and debentures.

This way the organization will be able to maintain a perfect
balance and not give away too much equity.

Effective utilization of funds

This is another reason for the high importance of business finance

and its efficient utilization. A business should be able to cut down
unnecessary costs and not invest funds in assets that are not
required. An exhaustive course in financial management, diploma
in banking and finance or any other course related to finance can
give your career in financial management a head start. Or, if you
are already in the field, it can give your career the necessary boost.

Scope of Business Finance

Scope means the sphere of research or research that is covered by
the subject. The scope of Business Finance is hence the scope that
is broad by this topic. A business, person or a company do need to
run various number of programs to attain their goals. These
programs require resources such as human resource, natural
resources or financial resource. Effectiveness in the management
of financial resource is a key to optimize making use of natural
resource and scope of business finance.

Scope of Business Finance:

Business Finance studies, analyses and examines, allocates funds

and many other fields covered under scope of business finance
functions. Let us see some of them are:

1. Analysis and Research of Financial Statement:

Analysis of financial statements is an another scope of business.

However, it analyses the situations which can be financial
problems that arises in the advertising of the business firm. This
financial statements consists the aspect related branding new
business, administrative difficulties when it comes to expansion,
necessary adjustments for the rehabilitation of the company in
difficulties.

2. Financial Planning and Controlling:

Any business or company must manage and make their analysis

that is good financially. The financial manager should have
knowledge about the present financial situation of the firm to
make these financial planning and management accordingly. On
the basis of these financial information, one should make
appropriate plans for future financial situation associated with the
company as well. Financial budget is a key area to control over
financial plans. The firms on such basis as budget, finds out the
deviation between the plan while the performance and tries to
improve them. Hence, the scope of business finance is composed
of financial planning and controlling.

3. Capital Structure Management:

Making financial decision related to long-term assets is known as

long-term investment decision or capital budgeting. This scope of
business finance notes is related to an investment proposal out of
the many related alternatives offered to the company. Here, the
capital structure management technique measures the worth of
this investment proposal, analysis the uncertainty and risk, as the
returns from the investment proposal extends into the future

4. Raising Capital:

Making capital opportunities is probably one of the most

important and critical scope of business finance. The business
finance has to raise money from the company with the assistance
of sources like stocks, debentures, banks, monetary organizations,
creditors etc.., a business might also choose to sell shares to equity
while raising long-term funds for company expansion to enhance
the finance. Balancing business financing is a act that is delicate.

5. Investing Capital:

There are two main kinds of corporate finance, working capital

and fixed capital. As the name suggests working capital is
generally used to purchase raw material and manage day to day
fixed expenses like salaries, overheads etc. Whereas fixed capital
can be used to purchase fixed assets like land, building,
machinery, property, etc. while financing and investing decisions
are like two edges of a same coin.

6. Managing / Monitoring Finances and Risks:

Monitoring finance is a technology, there is certainly a solution to
it, it’s not a simple job at all. It requires many tools and
techniques. Corporate finance has to control and manage the
finance of the business, they should minimize the risk of
investment and at the same time guarantee maximum returns in
the capital that is spent.

7. Finance Management:

Managing financing is just one more crucial area in the scope of

business finance. The management of finance is worried with the
mix of assets or structure associated with assets of the firm. The
firm should mix the ratio correctly of equity capital and debt
finance while investment. As capital structure is the ratio of equity
and debt capital. Now, the capital structure comprising the ratio
that is proper of and equity is recognized as optimum capital
structure.

8. Working Capital Management:

Making financial decision with reference to present assets or

short-term assets is well known as working capital management.
Short-term success is a necessity of long term success and also
this could be an important scope of business finance. Hence, the
efficiency in the management of working money ensures the
balance between profitability and liquidity.

9. Dividend Management:

Business finance also analyses the policies concerning the

dividend, book and depreciation. Every dividend choice is made
on the basis of financing decision of the firm. The company should
determine, how much of revenue should be distributed among
shareholders as dividend and how much should be retained as
earnings. Here, the monetary supervisor should develop a
dividend policy that is sound.
Conclusion: So to conclude, finance could be the bloodline of any
continuing business, it is required in most kinds of small or big
setups, development, expansion and diversification of a business.
It is required across all phases in the company life-cycle, to
initiate, build stability, survival, and also in the development
phase. These are some of the key features and various scopes of
business Finance functions. Though this key list of scope of
Business Finance is limited. Some of other scopes of business
finance notes are also related to research of regulation and
control, revenue management, study of financial assistance.