MC0M-106 OE01-106 (A) Business Finance

Unit-I: Introduction
Business finance-meaning and concepts, characteristics, importance of business
finance, Scope of business finance, role of business finance, risk and business finance,
relationship between business finance and accounting

Unit-II: Sources of Business Finance

Short-term finance-its sources, ways of raising short-term sources, Long term finance,
equity capital, methods of raising equity finance, Preference share, Debentures, Convertible
loan notes, Warrants, Term loans, Asset-backed finance(securitization), Leasing

Unit-III: Finance Functions

Financial decision, Liquidity decision, Investment decision, Dividend decision-
factors affecting finance functions.

Unit-I: Introduction
1.1 Business finance-meaning and concepts,
1.2 Characteristics,
1.3 Importance of business finance,
1.4 Scope of business finance,
1.5 Role of business finance,
1.6 Risk and business finance,
1.7 Relationship between business finance and accounting.

1.1 Business Finance- meaning and concepts

Business finance is encompasses a wide range of activities and disciplines regarding

the management of money and other valuable assets. Small business owners must have a
solid understanding of the principles of finance to keep their companies profitable. Business
finance refers to money and credit employed in business. Finance is the basic of business. It
is required to purchase assets, goods, raw materials and for the other flow of economic
activities. Business finance programs in universities familiarize students with accounting
methodologies, investing strategies and effective debt management.

What Is Business Finance?

Business finance refers to funds availed by business owners to meet their needs that
may include commencing a business, obtaining top-up funds to finance business operations,
obtaining finance to purchase capital assets for the business, or to deal with a sudden cash
crunch faced by the business.
Finance is the function within a business that is responsible for overseeing acquired
funds, managing existing funds and preparing for future expenditures of funds.

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Definitions:
Scott and Brigham
“Finance is concerned with decision about money or more appropriately cash flows.”
Professor Gloss and Baker
“Business finance is concerned with the sources of funds available to enterprises of all
sizes and the proper use of money or credit obtained from such sources.”
E.W Walker
“Business finance is to planning, coordinating, controlling and implementing of
financial activities of business institution.”
Henry Hoagland
Business Finance is concerned with the financing and investment decisions made by
the management of companies in pursuit of corporate goals.
Wheeler,
“Business finance is that business activity which concerns with the acquisition and
conversation of capital funds in meeting financial needs and overall objectives of a business
enterprise”.
Guthumann and Dougall
“Business finance can broadly be defined as the activity concerned with planning,
raising, controlling, administering of the funds used in the business”.
Parhter and Wert
“Business finance deals primarily with raising, administering and disbursing funds by
privately owned business units operating in non-financial fields of industry”.

Business finance can be defined as “The provision of money at the time when it is needed by
a business”.
The term ‘business finance’ is very comprehensive. It implies finances of business
activities. Business can be categorized into three groups: commerce, industry and service. It
is a process of rising, providing and managing of all the money to be used in connection with
business activities. It encompasses finance of sole proprietary organizations, partnership
firms and corporate organizations. No doubt, the abovementioned organizations have
different characteristics, features, different regulations and rules and financial problems faced
by them vary depending upon the nature of business and scale of operations. However, it
should be remembered that the same principles of finance are applicable to large and small
organizations, proprietary and non-proprietary organizations.

1.2 Characteristics of Business Finance / Features of Business Finance:

Business finance have some features that helps us to differentiate with other branches
related to finance; for example, business finance generally tend to value both the time and
money spent by a company, what you mean when an investor expects a profitable return, it is
exposed to run very high risks. Anyway we must say that most investors are usually used to
face this kind of risk, but still, of course, will always seek ways to reduce the risk you run.
Moreover, business finance are characterized by offering long-term investments to be

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carried out simple and similar, because the bottom line here is that all investments in
company project arises with sufficient finance. Opportunity costs are also part of the
characteristic factors relating to business finance, and in this case we must say that this is the
highest performance that finance will not be able to win in the event that funds are invested in
particular project. The opportunity costs are usually associated with the losses that an investor
is willing to take when an option that is best to use the corresponding money is not chosen.
Business finance often provide some dilemmas for investors, for example, one of the
most common is the one between liquidity and the need to invest, and this rethinking because
every company prefers own money, but despite that, they often choose to sacrifice this
liquidity in order to generate more utilities. Another of the dilemmas posed by business
finance is one that is centred between risk and profit. As we said earlier in this article, the
investor whenever you execute an investment is taking a risk of loss that can be either very
large or very small depending on the type of investment and the economic impact, whether
positive or negative than the same present.

Features of Finance:

The goal of any business is to expand and make money for the shareholders, which is
estimated by the stock price of an organization. What are the ways you can fulfil your
financial goals. Here are some of the important features of finance present for your
understanding.
1. Investment Opportunities:
A key feature of finance is to look forward for investment opportunities. Finance is
required to invest your money to create wealth or earn profits from it. There are many
investment opportunities in the market like purchasing a land, buying a home, investing in
your business idea, buying stocks, shares or financial instruments. Through these investment
opportunities you can generate wealth. Also remember that expected return on investment
always keeps on changing depending upon economic factors.
2. Allocation and Utilization of Funds:
An important feature of finance to every company is that, a business must guarantee
that satisfactory funds are accessible from the available sources at the correct time. It needs to
choose the method, strategies and types of finance to raising the capital, regardless of whether
it is to be through the issue of securities or bank loan. When funds are raised, next step is to
allocate those funds to different ventures, projects, etc. Mainly target of the any business is to
maximize profits and earnings. Appropriate use of finance depends on investment strategies,
techniques, decisions, control and management rules and policies for efficient results.
3. Diversify your Investment:
Best way to reducing the risk and maximize your profits / earnings of investment is to
diversify your investment. A best feature of finance is to diversify your investing funds and
you may require additional finance for your diversification needs. Many experts have
suggested that allocating all your funds from different sources into one area increases your
risk on investment. You should diversify your investment for example: 20% allocation in
equity funds, 20% allocation in mutual funds and 60% allocation in property or assets.

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4. Financial Decision Making:
Decision making is one the primary features of finance. If you are really a
good financial planner and you can analyse it well but you are unable to take decision
makes no sense. Firstly, you should prepare your financial plans, secondly your finance
management plans and then at the right time frame you should take decision. Slowing with
the help of knowledge you will keep on improving your decision making skills which will
benefit you in getting good returns on investment.
5. Financial Management:
Maximization of valuation of an organization is one of the features of finance which
is a goal of the company. Thus, the goals of finance are to guarantee adequate finance and
supply of funds is available to the business at any given time and also at a reasonable interest
rate. Finance helps business by effective use of capital and resources to follow the rules of
liquidity, productivity and limiting risk. It gives a clear picture of internal management,
investment, planning and control decisions.

1.3 Importance / Significance of Business Finance

There is a significance of business finance or you can say as importance of business

finance which gives companies, the money that is needed to expand, begin operations and
hire professionals, etc. When a continuing business has an idea for the new product / product
or service that fills a need in a community, this individual might move to business financing
to bring the idea to reality. There are specific loans that are designed based on small
businesses, mid-size company or a large company.
Importance of business finance is inescapable part of any company and efficient
financial decisions are essential for success and growth since it involves the management of
financial activities and financial resources of the company. Mostly team of accounting and
finance professionals or the finance department generally handles it. You can go through out
financial courses to gain an understanding also to keep up to date with changing trends,
technologies and legal challenges.
When businesses increase and hire a greater number of individuals, it benefits a
grouped community and plays a vital role in the economy of the country as well. An increase
in the number of businesses also leads to increase in government revenues through direct
taxes or indirect taxes. The speed at which funding and investments are applied to company is
one of the indications of the success of the business. Subsequently, the significance of
business finance can be proven in the fact economic policymakers / financial investors in an
area think about this activity when making decisions that affect the region that is entire.

Key Importance of Business Finance:

Even idea / innovation / new product / enhancing product are the central needs of a
business; one cannot ignore the significance of business finance and its effective
management. This is why there is a huge importance of business finance to a company:

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1. Initial Investment / Capital:
It really is popularly said that money is needed for earning profits. To begin the
activities of the continuing business, capital investment is foremost required and every
company knew the significance of business finance. For suggestions to materialize and
become products services being/ groundwork for sales, product testing, marketing, etc. seed
money is essential. Businesses have a make some hardcore decisions to choice that is
determining debt and equity funding.

2. Debt Ratios:
Importance of business finance is more significance than money in your hand. Many
businesses have some level of debt, mostly in the start-up stages. Excessively debt
contrasted with revenues / profits and assets can leave you into much bigger problems than
making your loan repayments. Vendors and suppliers usually run credit checks and may
restrict what you can buy on credit or keep payment that is tight. Debt ratios can affect your
capability to attract investors including venture capital firms and to acquire or rent area that is
commercial.

3. Managing Operation Expenses:

For the short-term, businesses require finance in the type of working capital to meet
operational costs such as for instance remunerative payments, raw materials, inventory,
interest repayments, etc. An importance of business finance is to make proper short-
term financial planning decisions as good finance flow is vital to keep the operations
consistently ongoing. Though maintain money that is adequate is always important, it’s
especially important in the starting stages since profits take some time to match the cash
outflows.

4. Asset Creation:
In the long-term, finance is required for buying assets like machinery, land,
equipment, etc. to expand the production scale. Scaling up production will create assets, help
the business grow and penetrate areas that are current. The business must have capital that is
enough doing so and cannot be determined by short-term finances because of this. Either they
must have savings or should know the importance of business finance and able to raise and
infuse capital investment through equity or debt financing.

5. New Products and Opportunities in the Markets:

There is significance of business finance and appropriate financial management that
is also important to an established company will maybe not manage to explore more
opportunities in the markets or develop and test newer solutions / items without finance.
Finance has a great importance in business as it is required for research and testing purposes
as well in terms of advertising and marketing purposes.

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6. Business Cycles:
No matter how well your business is doing, you need certainly to get ready for rainy
days as well as storms. Business and cycles that are economic dark clouds you can’t predict.
Business cycles of growth, boom, recession, depression and renewal caused by changes in the
economy and other factors that are outside a real possibility. And regardless of how well it is
doing, the continuing company is bound to bear such consequences and should be ready to
face these cycles. That’s why businesses which are smart economic plans for downturns.
Cash savings, good credit, smart investments, and favourable supply and property plans will
help a business stay afloat or even maintain momentum when the business growth are
unfavourable due to economic crisis.

1.4 Scope of Business Finance:

The scope of business finance is very wide. While accounting is concerned with the
routine type of work, business finance is concerned with financial planning, policy
formulation and control. Earnest W. Walker and William are of the opinion that the financial
function has always been important in business management. The financial organization
depends upon the nature of the organization whether, it is a proprietary organization, a
partnership firm or corporate body. The significance of the finance function depends on the
nature and size of a business firm. The role of business finance officers must be clearly
defined to avoid conflicts and the overlapping of responsibilities. There are various fields
covered by business finance and some of them are:

1. Financial Planning and Control:

Any business firm must manage and make their financial analysis and planning. To
make these planning’s and management, the financial manager must have knowledge about
the present financial situation of the firm. On the basis of this information, he/she regulates
the plans and managing strategies for future financial situation of the firm with in different
economic scenario. Financial budget also relies in these financial plans. Financial budget
serves as the basis of control over financial plans. The firms on the basis of budget, finds out
the deviation between the plan and the performance and tries to correct them. Hence, business
finance consists of financial planning and control.

2. Deciding Capital Structure:

The Capital structure refers to the kind and proportion of different securities for
raising funds. After deciding about the quantum of funds required it should be decided which
type of securities should be raised. It may be wise to finance fixed assets through long-term
debts. Even if gestation period is longer, then share capital may be most suitable. Long-term
funds should be raised. It may be wise to finance fixed assets through long-term debts. Even
here if gestation period is longer, then share capital may be most suitable. Long-term funds
should be employed to finance working capital also, if not wholly then partially. Entirely
depending upon overdrafts and cash creditors for meeting working capital needs may not be
suitable. A decision about various sources for funds should be linked to the cost of raising
funds. If cost of raising funds is very high then such sources may not be useful for long.

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3. Selection of Source of Finance:
After preparing a capital structure, an appropriate source of finance is selected.
Various sources, from which finance may be raised, include: share capital, debentures,
financial institutions, commercial banks loans, public deposits, etc. If finances are needed for
short periods then banks, public deposits and financial institutions may be appropriate; on the
other hand, if long-term finances are required then share capital and debentures may be
useful. If the concern does not want to tie down assets as securities then public deposits may
be a suitable source. If management does not want to dilute ownership then debentures
should be issued in preference to share.

4. Financial Statement Analysis:

Another scope of business finance is to analyses the financial statements. However, it
also analyses the financial situations and problems that arises in the promotion of the business
firm. This statements consists the financial aspect related to the promotion of new business.
Administrative difficulties arise at the time expansion, necessary adjustments for the
rehabilitation of the firm also in difficulties.

5. Working Capital Management:

The financial decision making that relates to current assets or short-term assets is
known as working capital management. Short-term survival is a prerequisite of long term
success and this is the important factor in business. Therefore the current assets should be
efficiently managed so that the business won't suffer any inadequate or unnecessary funds
locked up in future. This aspect implies that the individual current assets such as cash,
receivable and inventory should be very efficiently managed. Hence, the efficiency in the
management of working capital ensures the balance between liquidity and profitability.

6. Capital Building:
Financial decision making related to long-term assets is known as capital budgeting or
long-term investment decision. This scope s related to eh selection of an investment proposal
out of the many related alternatives available to the firm. However, the acceptance of the
proposal depends on the returns associated with that particular proposal. Here, the capital
budgeting technique measures the worth of the investment proposal. This technique studies
the method of appraising investment proposals. It also analysis the risk and uncertainty, as the
returns from the investment proposal extends into the future. All the returns are evaluated in
relation to the risk.

7. Management of Financing:
Managing financing is yet another important area of business finance. The
management of finance is concerned with the mix of assets or structure of the assets of the
firm. As the firm should always pay special attention to its assets. The firm should properly
mix the ratio of debt and equity capital while main investment. As capital structure is the
ratio of debt and equity capital. Now, the capital structure consisting of the proper ratio of
debt and equity is known as optimum capital structure. Hence, the financial manager should
make decision regarding optimum capital structure and the ratio of fund to be raised to

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maximize the returns for the shareholders. Suitable source. If management does not want to
dilute ownership then debentures should be issued in preference to share.

8. Dividend Management:
Business finance also analyses the policies regarding the dividend, depreciation and
reserve. Every dividend decisions are made on the basis of financing decision of the firm.
The firm should decide, how much of profit should be distributed among shareholders as
dividend and how much should be retained as earnings. This decision depends on the priority
of the shareholders and the investment opportunities available to the firm. Here, the financial
manager should develop a sound dividend policy. These were some aspects and scopes of
Business Finance. Though, Business Finance covers a wider scope than this above are limited
and important scopes of the field.

1.5 Role of Business Finance:

Finance serves an essential role to any company, because it has to do with a
business’s funds. Business finance departments are in charge of monitoring all the
financial activities within the company, and act as the floodgates when money comes in
and goes out. Since money is the backbone and propeller of business manoeuvres,
companies would be stagnant without people to manage the business’s finances.

Role in Money Management

One important role of business finance is to identify ways that the company can
save on expenses and enhance profitability. By performing financial analyses, business
finance executives can look at what makes financial sense, and what doesn’t, to ensure
smart money management. Cutting internal costs is something that a business finance
department will look at, as well as ways to increase generated revenue.

Role in Financial Planning

Business finance departments create budgets as part of their financial planning

strategies. Budgets are usually developed based on a series of financial projections that the
company believes it will need in order to operate at full capacity.

There is a lot of work that goes into budgeting and financial planning processes. For
instance, there is not only one budget that a company operates off of. Business finance
departments generate cash budgets, capital budgets and operating budgets.

Investopedia notes that financial planning is instrumental in maximizing profits and

making the best use out of the allowable money that the company has, or is given (through
loans).

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Role in Financial Forecasting

A business’s success depends largely on the dependability of financial forecasting.

Financial forecasting is the prediction of a company’s future financial goals and
performance. Business finance is responsible for creating financial forecasts that consider
things like sales volume, capital expenses, staffing resources and vendor agreements.

The reason that forecasting is beneficial to business is because it provides

executives with a financial framework of what can be expected in the coming years. Such
predictions and estimates help managers in determining what their budgets should be, how
to allocate funds and where they can cut costs.

Strategic Planning and Budgeting

You wouldn't load the family in a car and head out for a vacation without having a
map to your destination, would you? It's the same with your business. You define where
you want the business to go, determine the objectives and then ask your financial people
how much it will cost to get there. These plans form the basis for hiring employees, capital
spending, raising capital, marketing campaigns and bonuses for management.

Equity or Loan?

After creating the strategic plan, the finances turn to the methods of funding a
company's operations. Is it better to raise more equity capital from investors or take out
loans from lenders? Financial analysis gives the answer to this question.

Cash Flow Management

Who's keeping up with the cash? The finance people are. A small business owner
always wants to know how much money is in the company's bank account. It's the job of
financial managers to make sure the business has enough liquidity to pay its suppliers and
employee on time. If cash is getting tight, the people in finance will make arrangements to
use the firm's bank line of credit.

Conversely, having excess cash sitting idle in a bank account is a drag on a

company's return on investment. Financial analysis will spot this situation and will find
investments that produce a better return.

Profit Planning and Cost Controls

Since the basis of a business is to make a profit, it only makes sense that finance
would play a major role in finding ways to improve profitability. This might involve
determining the profitability of individual products and weeding out the losers and
promoting the winners. Finance could point out ways to improve productivity in
manufacturing or find cheaper sources of materials.

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 Small business owners are constantly reviewing their financial statements, looking
for any expenses that suddenly get out of line with the budgets. This is financial
management by exception. If everything is in line with the profit plan, no problem. If not,
then it needs the attention of managers to correct the deviations.

Managing Unavoidable Risks

Managing a business is risky, right? An owner has concerns about the direction of
interest rates, currency fluctuations, changes in commodity prices and risks that his
customers will not pay their invoices. Financial reports monitor these areas and give reports
to owners and managers.

Financial management analyzes the risks of international markets, checks the credit
standing of customers, goes through the terms of loans from lenders and provides an
assessment of the perils in these areas. Nothing is ever for certain, and finance helps put the
hazards in perspective.

The role of finance in business is indispensable. Business owners use financial data
every day when making decisions. They use finance to analyze the present and project the
future. Companies cannot operate without the benefits of financial analysis.

1.6 Risk and business finance:

Risk can be understood as the possibility of loss or danger. The finance department of
a company tries to prepare such a capital structure that attracts risk and cost, as well as the
existing management control, is diluted at the minimum level. There are two kinds of risk, as
per risk principle, namely, Business Risk and Financial Risk. The former is the risk related to
the business of the entity while the latter is the risk due to the use of debt funds.
Risk is inherent in every business, irrespective of its size, nature and structure. If there is no
risk there is no profit and thus, the higher the risk, the more will be the chances of getting
high returns. While business risk is unavoidable, financial risk is avoidable in nature. In this
article, we have compiled the substantial differences between business risk and financial risk
considering various parameters.

Comparison Chart
BASIS FOR
BUSINESS RISK FINANCIAL RISK
COMPARISON

Meaning The risk of insufficient profit, to Financial Risk is the risk arising due
meet out the expenses is known to the use of debt financing in the
as Business Risk. capital structure.

Evaluation Variability is EBIT Leverage Multiplier and Debt to

asset ratio.

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 BASIS FOR
BUSINESS RISK FINANCIAL RISK
COMPARISON

Connected with Economic environment Use of debt capital

Minimization The risk cannot be minimized. If the firm does not use debt funds,
there will be no risk.

Types Compliance risk, operational risk, Credit risk, Market risk, Liquidity
reputation risk, financial risk, risk, exchange rate risk, etc.
strategic risk etc.

Disclosed by Difference in net operating Difference in the return of equity

income and net cash flows. shareholders.

Definition of Business Risk

Business Risk is the probability of earning a comparatively low profit or even suffers
losses because of changes in the market conditions, customer demands, government
regulations and economic environment of business. Due to such risk, the firm will not
generate enough profit to meet out its day to day expenses. The risk is unavoidable in nature.
Every business organization operates in an economic environment. The economic
environment includes both micro and macro environment. The changes in the factors of the
two environments directly influence the business, and the risk arises. Some of those factors
changes in customer tastes and preferences, inflation, change in the policies of the
government, natural calamities, strikes, etc. The business risk is divided into various
categories:

 Compliance Risk: The risk arising due to the change in government laws.
 Operational Risk: The risk originating due to the machinery break down, process
failure, lockouts by workers, etc.
 Reputation Risk: The risk emerging as a result of any misleading advertisement,
lawsuit, criticism of bad products or services, etc.
 Financial Risk: The risk arising due to the use of debt capital.
 Strategic Risk: Every business organization works on a strategy, but due to the failure
of strategy the risk arises.

Definition of Financial Risk

Financial Risk is the uncertainty arising due to the use of debt finance in the capital
structure of the company. The capital structure of the company can be made up of equity
capital or preference capital or debt capital or the combination of any. The firm, whose
capital structure contains debt finance, are known as Levered firms whereas unlevered firms
are the firms whose capital structure is debt free.

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 Now, you may wonder that debt capital is one of the cheapest sources of funds, then
how will it become a risk for shareholders? Because at the time of winding up of the
company the creditors are given priority over the shareholders, and they will be repaid first.
So in this way, the risk arises that the company will not be able to fulfil the financial
obligations of the shareholders due to debt financing. Moreover, financial risk does not end
up here as it is a myriad of risks which are given as under:

 Market Risk: Risk arising due to the fluctuations in the financial assets.
 Exchange Rate Risk: The risk arising out of the variations in the currency rates.
 Credit Risk: The risk emerging because of non-payment of debt by a borrower.
 Liquidity Risk: The risk originating as a result of a financial instrument is not traded
quickly in the market.

1.7 Relationship of finance with other areas of management:

There is a close relationship between the finance and other areas of management such
as production, Human resource, marketing etc. Almost all business activities in an
organization directly or indirectly involve the acquisition and use of funds. The determination
of production, human resource and marketing strategies are the freedom of the chief of
production, purchase and marketing divisions respectively, but for implementing their
decisions funds are required. For example, the production department may decide to replace
an old machine with a new one to increase the production capacity but it has financial
implications too. Similarly, the purchase and sales promotion policies are laid down by the
purchase and marketing divisions respectively, but procurement of materials, advertising and
other sales promotion activities cannot be carried out without funds. Likewise, the
recruitment and promotion of staff is the responsibility of the Human resource department but
recruitment and promotion of employees require funds for the payment of wages, salaries and
other benefits. Many times, it may be difficult to separate where the one function ends and
other starts. It may, however be noted that although the finance of raising and using funds has
a significant effect on other areas of management, it need not limit or obstruct the general
functions of the business. It is possible that a firm facing financial difficulties may give more
weight age to financial considerations and develop its own production and marketing
strategies to suit the situation. On the other hand a firm with plenty of funds may not have
much inflexibility with regard to financial considerations vis-à-vis other management
functions. In such a firm, financial policies may be adjusted to the needs of the decisions
relating to production, Human resource, marketing and other functions. Relationship shows
balanced behavior of officers of finance department and other department's officers. They
should concentrate on one target of company and many other things, they should know for
creating good relation. Relationship of finance with other areas of management can be
explained in following way:

1. Relationship of Finance with Production:

Production department’s main duty is to produce the goods. For producing goods, it
needs raw material, labour and other expenses. For paying all expenses, production

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department needs money and fund which will be fulfilled by finance department. Finance
department checks the budget of production department and allow funds for production
department. With this view, we can understand that production department is dependent on
finance department’s decision. Now, if production department performs his duty honestly and
products are produced and sold on time, it will be helpful for increase sale and profitability
and it will again recycle the fund with high profit in finance department. So, we can say both
are dependent on each other. Both are players of business team. Both should be adopt co-
operative view for each other. After this, business team can succeed in business.

2. Relationship of Finance with Marketing:

Marketing department’s main duty is to sell maximum goods and satisfy the
consumers. Its product’s input cost will decrease if all products are sold by marketers of
company. For developing the product, promotion activities and distribution activities of
marketing department need some money for paying salesmen, advertising budget and other
promotional expenses. For this marketing department makes his marketing budget and it is
cleared by finance department, but sometime finance department will not all specific
marketing expenses but marketing department need that type of expenses for promotion of
sales. This will create confliction. Good relations will be helpful for both departments. If both
department does meeting and show behaviour like good relative, the problem can easily
solve. Both departments should think that both are the part of company’s organization and
co-ordination between them is must. Sometime, marketing department obtains big order for
supplying the goods, at that time finance department should help marketing department for
arrangement of money for buying raw material and supplying quickly without any delay.

3. Relationship of Finance with Personnel:

Personnel are that science which manages the employees of company and finance is
that science which manages the money. If personnel department and finance department work
together with cooperation, both departments can satisfy the objectives of company. It is the
objective of company to satisfy employee by fulfilling their financial needs. It is also
objective of company to reduce the misuse of fund by paying excess salary that required cost
of doing work by employee. So, both department should understand each other’s objective
and should help other department for fulfilling the objectives. One more thing, financial
decisions are also very necessary in human resource area. Corporate are moving to the
development of employees. They are human resource capital of company. Now, investment
in training of employees, incentive schemes and retirement schemes etc should be calculated
like other investment and both departments should take maximum advantages from this asset.
The finance cannot work effectively unless it draws on the -disciplines which are closely
associated with it. Management is heavily dependent on accounting for operating facts.
Accounting' has been described by Richard M. Lynch and Robert W. Williamson as "the
measurement and communication of financial and economical data. In fact, accounting
information relates to the production, sales, expenses, investments, losses and gains of the
business. Accounting has three branches namely, financial accounting, cost accounting and
management accounting.

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4. Financial Accounting:
It is concerned with the preparation of reports which provide information to users
outside the firm. The most common reports are the financial statements included in the
annual reports of stock-holders and potential investors. The main objective of these-reports is
to inform stockholders, creditors and other investors how assets are controlled by a firm. In
the light of the financial statements and certain other information, the accountant prepares
funds film statement, cash flow statement and budgets. A master plan (Budget) of the
organization includes and coordinates the plans of every department in financial terms.
According to Guthmann and Dougall, “Problems of finance are intimately connect end while
problems of purchasing, production and marketing”.

5. Cost Accounting:
It deals primarily with cost data. It is the process of classifying, recording, allocating
and reporting the various costs incurred in the operation of an enterprise. It includes a
detailed system of control for material, labour and overheads. Budgetary control and standard
casting are integral part of Primary Disciplines. The purpose of cost accounting is to provide
information to the management for decision making, planning and control. It facilitates cost
reduction and cost control. It involves reporting of cost data to the management.

6. Management Accounting:
It refers to accounting for the management. It provides necessary information to assist
the management in the creation of policy and in the day to day operations. It enables the
management to discharge all its functions, namely, planning, organizing, staffing, direction
and control efficiently with the help of accounting information. Functions of management
accounting include all activities connected with collecting, processing, interpreting and
presenting information to the management. According to J. Batty, ‘management accounting’
is the term used to describe the accounting methods, systems and technique which coupled
with special knowledge and ability, assist management in its task of maximizing profits or
minimizing losses. Management accounting is related to the establishment of cost centres,
preparation of budgets, and preparation of cost control accounts and fixing of responsibility
for different functions.

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