14-02-2013, 02:06 PM
AN ORGANIZATIONAL STUDY AT ASHOK LEYLAND LIMITED
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INTRODUCTION OF FINANCE:
Finance is the study of funds and management. Its general areas are business finance, personal finance and public finance. It also deals with the concepts of time, money, risk, and the interrelation between the given factors. It is basically focused on how the money is spend and budgeted.
It is one of the most important aspects in handling business. It is a application of set of techniques used by organizations in managing their financial affairs. The income and expenditure are emphasized in finance and its differences can easily be indicated
Financial instruments are also used to secure these assets on securities exchanges such as stock exchanges and bonds. A bank provokes the activities of both borrowers and lenders. Lenders pay deposit to bank on which it pays the interest rates.
Financial capital is a monetary resource allows businesses to purchase items that will create goods for production and other services. Budget is a documentation of the entire entrepreneurship.
The outline includes the objectives of the business, the target sets, resulting costs, required investment, planned sales, growth, financing source and financial results.
MEANING OF FINANCE:
In its simplest sense finance refers to those activities involved in seeing that an individual or organization has the cash with which to pay its bills promptly. The encyclopedia Britannica attempts to convey the ideas as follows.
Without suggesting that a word of such extensive practical application can be adequately defined by any simple formula, we may indicate its significance by saying that finance is the act of providing the means of payment.
The immediate aim thereby assigned to finance in any business is simply that of maintaining at all times an adequate cash balance (in money or bank credit). But the means employed include all the multifarious methods of borrowing money and of exchanging one sort of pecuniary right against another.
The concept of finance is somewhat broadened by defining finance as that administrative area or set of administrative functions in an organization which have to do with the management of the flow of cash so that the organization will have the means to carry out its objective as satisfactorily as possible and at the same time meets its obligations as they become due.
CORPORATE FINANCE:
The most important area of business finance is the corporation finance because the big business firms require a huge capital which is procured from the market/public.
So, an efficient use of funds is very essential. Huge business houses employ expertise to raise and utilize finance from various sources. The corporation finance refers to the planning, raising, administrating and controlling.
Thus, it refers to planning, raising, administrating and financing of expansion of business and the financial adjustments.
CHOICE OF SOURCES OF FINANCE:
A company can raise funds from different sources e.g. shareholders, debenture holders, banks, financial institutions, public deposits etc. Before raising the funds, it has to decide the source from which the funds are to be raised.
The choice of the source of finance should be made very carefully by taking a number of factors into account such as cost of raising funds, conditions attached, charge on assets, burden of fixed charges, dilution of ownership and control etc. For example, if the company does not want to dilute the ownership, it will depend on any source of finance other than investment in shares.
INVESTMENT OF FUNDS:
The funds raised from different sources should be prudently invested in various assets -short term as well as long term to optimize the return on investment.
In taking decisions for the investment of long term funds, a careful assessment of various alternatives should be made through capital budgeting, opportunity cost analysis and many other techniques used to evaluate the investment proposals.
A part of the long term funds should be invested in working capital of the company. While taking decision for the investment of funds in long term assets, management should be guided by three basic principles, viz. safety, profitability and liquidity.
In taking decisions for the investment of funds in working capital, the finance manager must seek cooperation of marketing and production departments in estimating the funds which are to be involved in carrying of inventories in finished product and credit policy of the marketing department and in raw material and factory supplies of the production department.
MANAGEMENT OF CASH:
It is the prime responsibility of the finance manager to see that an adequate supply of cash is available at proper time for the smooth running of the business.
Cash is needed to purchase raw materials, pay off creditors, to pay to workers and to meet the day to day expenses of the business. Availability of cash is necessary to maintain liquidity and credit- worthiness of the business.
Excess cash must be avoided as it costs money. It there is any cash in excess, it should be invested in near cash assets such as investments etc. which may be converted into cash within no time.
A cash flow statement should be prepared by the department to know the correct need of cash is essential to achieve the goal of profitability and liquidity. The finance manager should decide in advance how much cash he should retain to meet current obligations of the company.
DISPOSAL OF SURPLUS:
One of the prime functions of the finance department is to allocate the surplus. After paying all taxes, the available surplus of the business can be allocated for three purposes:
(a) For paying dividend to the shareholders as a return on their investment,
(b) For distributing bonus to workmen and company's contribution to other profit sharing plans
© For ploughing back of profits for the expansion of business. As far as the second alternative is concerned, the amount to be paid to workers is generally fixed either by statute or by agreement and therefore, there is no problem in allocating surplus for this purpose.
But a considerable, attention is to be paid in so far as first and third alternatives are concerned i.e., how much to be paid to shareholders as dividend and how much to be retained in the business. For this purpose factors like the trend of the earning of the company, trend of the market price of its shares; the requirement of funds for the purpose of expansion and future prospects should be considered.
IMPORTANCE OF BORROWINGS
Borrowing operations bridge the gap between the expenditure requirements and income receipts in the production economy. The terms of repayment, the cost of credit, the security demanded for it - all these terms and conditions of credit would determine the profitable use of credit. Credit by definition is obtaining of resources at one period of time with an obligation to repay the same during a subsequent period according to the terms and conditions of credit. In any money market, the conditions of credit are intimate knowledge of the borrower by the lender complete security to the lender as regards the title of the security offered recovery of capital and interest on due date.
Thus consideration of credit requirement is closely related to the concept of credit-worthiness. One of the most important factors in the mechanism of modern finance is the use of credit.
MEANING OF MONEY MARKET
The centre in which any financial agencies-whether organized or unorganized-operate is called money market. It is a centre of supply of and demand of short-term funds.
The centre in which organized financial institutions operate is called organized money market and the centre where indigenous financial agencies operate is known as unorganized money market.
OBJECTIVES:
For optimum financial decisions, the objectives of financial management shall be clearly defined. They should be so laid down that they contribute directly towards the achievement of overall business objectives.
Objectives provide a normative framework within which a firm is to take decisions. Financing is the functional area of objective of the business and contribute directly towards it.
The main objectives of a business are survival and growth. In order to survive ups and downs in the business, the business must earn sufficient profits and it should also maintain proper relations with shareholders, customers, suppliers and other social groups.