With the gradual progress of society & civilization and the development of science and technology, the scope of trade and commerce has also increased. Hence, the product-market has to cope with diverse competitions. To make profit in this competition, a businessman has to utilize his capital efficiently through proper planning so that the cost of production or selling could be kept minimum. Hence, a business firm can maximize its profit. For that purpose, every business firm collects its necessary fund for investment from the most desirable sources, and invests it in the most suitable project by analyzing various information of the product-market.
This creates inflows and outflows of fund in the business. Finance regulates these flows of fund nicely. Different principles of finance are used in this process of regulation. Financial Management helps a businessman to earn enough profit from investing even a small amount of capital. Now-a-days finance is no more used as a supporting system but as the main driving force of business.
After reading this chapter we shall be able to do:
• Definition of Finance
• Classification of Finance
• Importance of Finance
• Principles of Finance
• Functions of Financial Manager
• Evolution of Finance
1.1 Concept of Finance
Finance deals with fund management. Finance prepares plans and implements necessary activities about what amount of fund should be collected from which sources and where & how this fund is to be invested for highest profit in the project. In case of a business firm, fund flows in the business from selling of products. Different types of fund are needed to produce and buy goods for the business, like- purchasing machinery, purchasing raw materials, paying wages to the labours, etc. These are the utilization of fund. Funds need to be collected in a planned way as per the requirement of fund to maintain an uninterrupted production process. Finance means this process related to