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Unit 1: Introduction to Financial Management

the type of financing used by the firm. However, the decisions are actually made on the Notes
basis of cash flow effects on the overall value of the firm.

1.3.4 Interface with other Functions
Finance is defined as the lifeblood of an organization. It is a common thread, which binds all the
organizational functions as each function when carried out creates financial implications. The
interface between finance and other functions can be described as follows:

Manufacturing Finance

1. Manufacturing function necessitates a large investment. Productive use of resources ensures
a cost advantage for the firm.
2. Optimum investment in inventories improves profit margin.

3. Many parameters of the production cost having effect on production cost are possible to
control through internal management thus improving profits.
4. Important production decisions like make or buy can be taken only after financial
implications have been considered.

Marketing Finance
1. Many aspects of marketing management have financial implications e.g., hold inventories
to provide off the shelf service to customers and thus increase sales; extension of credit
facility to customers to increase sales.
2. Marketing strategies to increase sales have additional cost impact, which needs to be
weighed carefully against incremental revenue.

Personnel Finance
In the global competitive scenario, business firms are moving to leaner and flat organizations.
Investments in Human Resource Development are also bound to increase. Restructuring of
remuneration structure, voluntary retirement schemes, sweat equity etc., has become major
financial decisions in the area of human resource management.

Task Which of the following functions should be the responsibility of a finance manager?
1. Maintaining the books of account.
2. Negotiating loans with banks.
3. Conducting of internal audit.

4. Deciding about change in the policies regarding recruitment.
5. Change in marketing and advertising techniques routine.

Strategic Planning – Finance
Finance function is an important tool in the hands of management for strategic planning and
control on two counts:
1. The decision variables when converted into monetary terms are easier to grasp.
2. Finance function has strong inter-linkages with other functions. Controlling other functions
through finance route is possible.

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