5.1 Role of the Finance Function

Calculating Sales Revenues and Production Costs:

This involves determining the income from sales and the expenses involved in producing goods or services.

Calculating Profit or Loss Using Sales Revenue and Production Cost:

By subtracting production costs from sales revenue, the finance function assesses whether the business is making a profit or incurring a loss.

Forecasting Cash Flow:

This includes predicting future revenues and expenditures to determine if the business will have enough cash or if it will need additional finance, such as an overdraft.

Managing Payments and Receipts:

The finance function is responsible for handling payments like wages and bills, as well as managing the money received from sales.

Arranging Finance:

This involves securing funds for the business, such as obtaining loans or issuing shares to raise capital.

Calculating the Break-even Output:

The finance function calculates the level of output needed to cover all costs, ensuring the business avoids losses.

Calculating the Average Rate of Return:

This measures how well the business is performing by assessing the profitability of investments or projects.

By managing financial resources effectively, the finance function helps businesses make informed decisions, control costs, and achieve their strategic objectives.