Therefore it is important to plan their timing and volume. Liquidity Decision: - Liquidity means the capacity of a firm to convert an asset into cash within a short period without much loss. Therefore it is important to plan their timing and volume. Investment Decision: Evaluating the risk involved, measuring the cost of fund and estimating expected benefits from a project comes under decision. This knowledge will assist you in empowering your financial management decisions.
However, the first alternative i. To increase profitability sufficient funds will have to be invested. How much money will be required for acquiring various assets? While taking decision for the investment of funds in long term assets, management should be guided by three basic principles, viz. The process of levying tax is certainly an art. In most cases these decisions are delegated to junior staff in the organization. To achieve the objective of economic equality taxes are levied at progressive rate. Finance links itself directly to several functional departments like marketing, production and personnel.
The decision involves generating capitals by various methods, from different sources, in relative proportion and considering opportunity costs, with respect to time of flotation of securities, etc. Investment Decision: - The investment decision relates to the selection of assets in which funds will be invested by a firm. As such, it deals with situations that require selection of specific assets and liabilities as well as problems of size and growth of an enterprise. What is the risk involved? The discipline of public finance describes and analyses government services,subsidies and welfare payments,and the methods by which the expenditures to these ends are covered through taxation,borrowing,foreign aid and the creation of money. The selection of an appropriate source is a delicate task. In positive science one knows about factual situation or facts as they are. Hence, the efficiency in the management of working capital ensures the balance between liquidity and profitability.
The converse will hold true. Financing Decision: Financing decision is the second important function to be performed by the financial manager. Finance is one of the basic foundations of all kinds of economic activities. Public Debt: In this section of public finance, we study the problem of raising loans. The financial manager must decide whether the firm should distribute all profits, or retain them, or distribute a portion and return the balance. It also studies the casual relationship between facts relating to revenue and expenditure of the government. Public Finance as Art Art is application of knowledge for achieving definite objectives.
This technique studies the method of appraising investment proposals. Now, the capital structure consisting of the proper ratio of debt and equity is known as optimum capital structure. Investment proposals should, therefore, be evaluated in terms of both expected return and risk. The more current assets a firm has, the more liquid it is. Bonus shares are shares issued to the existing shareholders without any charge. If requisite funds are not made available at the needed time; significance of finance is lost.
Since every tax is likely to be opposed, it becomes essential to plan their timing and volume. This decision depends on the priority of the shareholders and the investment opportunities available to the firm. It is positive science as well as normative science. Study of Public finance is helpful in solving many practical problems. It affects success, growth and volatility of a company. If finance is needed for short period then banks, public deposits and financial institutions may be appropriate.
Which taxes, direct or indirect, should be imposed. It reveals what should be the quantum of taxes,kind of taxes and on what items less of public expenditure can be incurred. Only accounting use can help overcome these problems. It should be ensured that funds do not remain idle at any point of time. Plehn has advanced the following arguments in favour of public finance being science. Objectives of Finance Function For optimum financial decisions, the objectives of financial management shall be clearly defined. This part describes the various economic polices and other measures of the government to bring about economic stability in the country.
This intermingling nature of financial management calls for efforts in producing a coordinated financial system for the whole enterprise. The second alternative which gives more profits only in later years is inferior; as the time-value of profits is more in the case of the first alternative. Public finance deals with the income and expenditure of public bodies or the Government of the nation and the principles, problems and policies relating to these matters. The dynamic regulatory environment and the rise of technology in everyday banking activities is changing the way we bank, and catering to this fast evolving dynamics is tough for most banks. Quality of benefits profits is the most when risk associated with their occurrence is the least. 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.