Mis Finance

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FINANCE INFORMATION SYSTEMS

Vidya PanickerSession : 7


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Financial aspects of business activities deal primarily with

raising, distributing and administering funds by an organisation

for purpose of business operations.

Determination of total amount of funds to be used by theorganisation

What specific assets the organisation should acquire allocationof funds amount various assets in an efficient manner.

How the fund requirement will be financed ?


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Accountingsubsystem

Financial intelligencesubsystem

Database

Fundsmanagement

subsystem

Control

subsystem

USERS

Model of Financial InformationSystem


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Accounting system

Maintains and analyses book keeping records

Financial statements are prepared P&L , balance

sheet (measures the impact of financial transactionson business)

Measures the cumulative effect of transactions in theform of financial statements.

Internal audit is conducted by the internal staff of

the firm.


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Financial Intelligence system

Objective of finance function is to raisefunds at lowest possible cost

Investment of these funds and maximisereturns from them.

To achieve this objective the FIS gathersinformation regarding

- most desirable sources of funds

- investment opportunities for surplusfunds.


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FIS gathers relevant information from

environment - specialised financialinstitutions, commercial banks, investing

publics, stock exchanges etc. for raising

funds.

Monitors the monetary policy of central

banks as this policy has a direct impact on

the interest rates and availability of funds.


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Funds Management

Sources of funds

Long term equity shares, preferenceshares, debentures, long term loans,retained earnings

Short term loans from banks, others,public deposits, trade credits, customersadvances, leased assets


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A financing mix is the combination of varioussources through which funds are raised. It may be

a combination of long term or short term funds.The combination depends on the followingfactors :

1.

Cost of capital2. Financial leverage3. Control and Interference in management4. Nature of business5. Purpose of financing6. Organisational capabilities


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Usage of funds

Eg. A manufacturing firm

Fixed assets Current Assets

Land buildings Inventories

Plant and machineries RM, WIP, FG

Electrical installation Trade credits

Furniture and fixtures Loans and advances

Vehicles Current investments

Others Cash-in-hand, with

bank/s


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Investment in fixed assets

Acquisition of new fixed assets for expansion

Equipments for enhancing present plant capacity

To create R&D facilities

Investment in fixed assets are beneficial only if :

It generates more returns than cost of capital

Choice of appropriate technology

There is a proper mix of various fixed assets

project implementation is managed effectively


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Investment in working capital

the basic principle of investing in working capital

is to maintain the same at a level which facilitates

business operations and minimises cost of working

capital.

To minimize investment in working capital or to

use it more effectively, following steps can be

taken :

Inventory to be maintained at a proper level

Investment in debtors should be minimised


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Management of Earnings

Involves decision about how the earningsshould be utilised.

Distribution or retaining of earnings depends

upon :

1. Future needs of funds

2. Shareholders needs

3. Dividend stabilisation


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Control system

1. Setting performance stds for control

2. Measuring actual performance against

std.3. Analysing variance between actual & std.

4. Taking corrective action


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Budgetary control

Budgetary control is a system which uses budgets

as a means for planning and controlling entire

aspects of organisational activities.

BC as a tool for planning :

BC forces managers to plan their activities

Plans are defined in numerical terms which helpsfor appraisal of managerial performance.

Rational use of organisational resources higher

stds of performance and efficiency.


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BC as a tool for control

BC provides standards of performance

It pinpoints any deviation between budgetedstandards and actual achievement.

BC also pinpoints the reasons responsible for any

deviations.

Budget preparation :

1. Top Down approach

2. Bottom-up approach

3. Participative approach


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THANKS

Mis Finance

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