Taking decision on needs and sources of new external finance: Since cash flow originates from sales and cash requirements are closely related to sales volume, adequate cash can be provided at the proper time only after forecasting cash needs.Ĥ. Otherwise, the smooth operation of a company may not be possible. Such forecasts are based on sales forecasts.Īn important responsibility of the finance manager is to ensure an adequate flow of cash as and when it is needed. Such financial plan is based on forecasts of financial needs of the company. To start with the finance manager has to draw a plan outlining the company’s need for funds. In this case, the finance decision is based on an analysis of the alternative sources and uses of funds. At the same time, he has to consider whether the additional return (cash flow) expected from the new machinery is sufficient to cover the cost of capital in terms of interest to be paid over a period of time. The cost of the machinery may be financed by making a public issue of 8% cumulative preference shares. The finance manager takes all decisions that relate to funds which can be obtained as also the best way of financing an investment such as the installation of a new machinery inside the factory-or office building. This definition treats the finance function as the procurement of funds and their effective utilisation in business. The third view - based on a compromise between the two - is more useful for practical purposes. This definition is much too broad and thus is not really meaningful. Another extreme view is that finance is concerned with cash.

Define finance