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Primary Aims of Finance Function Present Value Definition – A Guide

Hello, Finance is a term for matters regarding the management, creation, and study of money, and Further, although financial management overlaps with the financial function of the accounting profession, financial. Experimental finance aims to establish different market settings and environments to observe experimentally.

And the primary aim of the finance function is to arrange as many funds for the business as are required from time to time. And the roles assigned to the employees of the Finance Department form the basis of its organizational structure. For most small businesses, these include bookkeeping, payroll, financial and tax reporting, financing, and helping with long-term business planning.

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What are the four objectives of the finance function?

1. Maximizing Firm’s Value:

The finance function also aims at maximizing the value of the firm. It is generally said that a concern’s value is linked to its profitability. Even though profitability influences a firm’s value but it is not all. Besides profits, the type of sources used for raising funds, the cost of funds, the condition of the money market, the demand for products are some other considerations that also influence a firm’s value.

2. Increasing Profitability:

The planning and control of the finance function AIMS at increasing the profitability of the concern. It is true that money generates money. To increase profitability, sufficient funds will have to be invested. The finance function should be so planned that the concern neither suffers from the inadequacy of funds nor wastes more funds than required.

Proper control should also be exercised so that scarce resources are not frittered away on uneconomical operations. The cost of acquiring funds also influences the profitability of the business. If the cost of raising funds is more, then profitability will go down. Finance function also requires matching of cost and returns from funds.

3. Proper Utilisation of Funds:

Though raising funds is important their effective utilization is more important. The funds should be used in such a way that maximum benefit is derived from them. The returns from their use should be more than their cost.

It should be ensured that funds do not remain idle at any point in time. The funds committed to various operations should be effectively utilized. Those projects should be preferred which are beneficial to the business.

4. Acquiring Sufficient Funds:

The main aim of the finance function is to assess the financial needs of an enterprise and then finding out suitable sources for raising them. The sources should be commensurate with the needs of the business. If funds are needed for longer periods then long-term sources like share capital, debentures, term loans may be explored.

A concern with a longer gestation period should rely more on the owner’s funds instead of interest-bearing securities because profits may not be there for some years.

Also read: Tops 9 Types of Importance Financial Analysis. A Guide

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