White Black International Mountain Day Instagram Post

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BASICS OF
FINANCE
Yuldasheva Sevara
BR-64

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Sunrise over the sea
makes my heart sing
Principles and functions of Finance
The finance function refers to practices and activities
directed to manage business finances. The functions are
oriented toward acquiring and managing financial
resources to generate profit. The financial resources
and information optimized by these functions
contribute to the productivity of other business
functions, planning, and decision-making activities.
Finance is the lifeblood of any business; without proper
financial resources, no business can run smoothly; the
finance processes can be related to planning, execution,
control, and maintenance of financial resources.
Moreover, its scope is ever increasing; it widens as the
company grows because larger companies have the
resources to support the increase in functions.

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There are different classifications for finance functions,
and it varies with organization types. The finance
department functions like bookkeeping, budgeting,
forecasting, and management of taxes, and the finance
manager functions like financial report preparations
contribute to the overall financial wellbeing of an entity.
Let’s look into some of the popular classifications.The
investment decision function revolves around capital
budgeting decisions. Capital budgeting in an organization
involves the analysis of investment opportunities,
specifically long-term projects, and associated cash flows,
to determine the profit potential. They revolve around
making a sound investment that must ripe sufficient and
sometimes maximum returns for the business in the long
run. Hence these decisions are challenging and complex.
Payback Period, Net Present Value (NPV) Method,
Internal Rate of Return (IRR), and Profitability Index (PI)
are the popular methods to carry out capital budgeting.

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Expertise in forming financing decisions leads to optimized
capital structure, enhanced performance, and growth.
Financing functions deal with acquiring capital (like when and
how) for the various functioning of the entity, like whether to
use equity capital or debt to finance business events. The debt
and equity mix of an entity are called its capital structure. The
financing decisions always focus on maintaining good capital
structure ratios.Dividend decision Companies share profits
with their shareholders in the form of dividends. There are
different types of shares, shareholder’s dividends, and dividend
policies. Furthermore, a company’s dividend policy influences
the company’s market value and stock prices. Hence dividend
decision, including the division of net income between
dividends and retained earnings, is an important
function.Liquidity decisionLiquidity decision generally revolves
around working capital decisions and management. Therefore,
the priority is managing current assets to follow the going
concern concept. The lack of liquidity results in issues like
financial crisis and insolvencies. At the same time, a lot of
liquidity can also lead to more danger. Hence, it is important to
have the right mix of current assets and current liabilities.

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Cash Flow Matters
Time Value of Money
Principles of Risk and Return
Market Prices is Key
Conflicts of Interest Cause Problems
As you are designing and preparing to deliver a product
to market, it is important to understand the principals
of finance. There are tons of principles of finance, and
some apply to product design and some do not. For this
specific guide, we are going to focus on Five Principles
of Finance that are general in application.
What are those five principles?
Time value of money simply means that your people
cost something. You might not take into account
someone’s time in the cost of designing a product, but
no one works for free. There needs to be a monetary
figure put on the people working to design the product,
not just the physical cost of the product.

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