What is the Need of Finance?

What is the Need of Finance?

The Need for Industrial Finance! – A business firm, whether an individual proprietor or partners or acquaintances possessed it, undertakes business in expectation of return or profit. Before it receives any yield, the company must make advance investment for setting up in business. The machines must be purchased, rented or the mill space is to

The Need for Industrial Finance! – A business firm, whether an individual proprietor or partners or acquaintances possessed it, undertakes business in expectation of return or profit. Before it receives any yield, the company must make advance investment for setting up in business. The machines must be purchased, rented or the mill space is to be purchased materials should be purchased and salaries and wages arc to be paid into the workers for their services Finance is required to tackle all activities in company. Is likely to return to the firm in yield m of time’s form. The company has to wait around for this.

A farmer ploughs and sows his subjects weeks before he reaps the harvest A transportation company must buy motors and trucks and cover gasoline labour, etc. Before it has paid for its haulage services. A manufactures must produce goods be ore he could sell them can do when he finances for creation of his goods. Finance is an essential precondition for company both for running and its initiation. The requirement of finance depends upon the kind of business or production and the type of payment for which it’s to be used. Large scale manufacturing with intensive technology could require huge quantity of money for operating expenses and for investment.

Small scale products using relatively labour intensive technologies and on the other hand might need less money to begin the companies and also to operate it nature of technologies and the degree of production into be produced are natural determinants of that the demands of finance. In some business, it can take substantially long time to set that the p ant and also to make it operative. Longer the gestation period more will be the requirement for finance. Steel mills, refineries, ship building, power plants, etc. Are a few samples of such business. Aside from the gestation period, the duration of operating cycle may have significant implications on requirement for finance.

Operating cycle is the speed w that the working capital completes its round, I.e., conversion of money into stock of raw materials and stores stock of raw materials into stock of finished or her goods, inventory of finished or her or her or her goods into book debts or accounts receivable from the clients and lastly realization of money from the consumer. Longer the period for such cycle, more will be the requirement for finance for business operations. The other factors that influence that the requirement for company finance could be cited as terms of purchases and also sales, growth and also expansion policies of the company, dividend policy, manufacturing policies, company cycle fluctuations and managerial efficiency of the company. In a nutshell, initially finance is required to established the company, i.e. Installation of plant along with other amenities that we call Fixed Capital Formation.

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