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
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