EFFECTIVE UTILISATION OF FUNDS

 Effective Utilisation of Funds
The finance manager is also responsible for effective utilisation of funds. He has to point out situations where the funds are being kept idle or where proper use of funds is not being made. All the funds are procured at a certain cost and after entailing a certain amount of risk. If these funds are not utilised in the manner so that they generate an income higher than the cost of procuring them, there is no point in running the business. Hence, it is crucial to employ the funds properly and profitably. Some of the aspects of funds utilization are:-

(a) Utilization for Fixed Assets: The funds are to be invested in the manner so that the company can produce at its optimum level without endangering its financial solvency. For this, the finance manager would be required to possess sound knowledge of techniques of capital budgeting. Capital budgeting (or investment appraisal) is the planning process used to determine whether a firm’s long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects would provide the desired return (profit).

(b) Utilization for Working Capital: The finance manager must also keep in view the need for adequate working capital and ensure that while the firms enjoy an optimum level of working capital they do not keep too much funds blocked in inventories, book debts, cash etc.