FINANCIAL MANAGEMENT

Life blood Of Business Finance

Definition
According to Ezra Solamn financial management is concerned with the efficient use of an important economic resources viz capital funds.

Nature of Financial Management

Financial management is mainly concerned with the proper management of funds. The financial manager must see that the funds are procured in a manner that there is risk, cost and control considerations are properly balanced in a given situation and there is optimum utilization of funds.

Scope of Financial Management

1. Traditional Approach It is concerned with raising of funds and administration of funds Issuing securities and raise funds Raising funds from financial institutions Maintaining proper records and legal activities.

2 Modern approach To decide how much amount is required from where and maintain records. What type of assets are required In what ways the funds utilized i.e optimum utilization Taking dividend decision

Financial Functions
1. Investment Function I.e.investment decision Selection of particular projects for investments( based on ROI) After selection, decide how it is to be used

2. Financing decision Objective is to minimize cost of capital It is one time decision and it is a non recurring function

3.Working Capital Decision Based on two criteria * liquidity * return

4.Dividend Decision It is concerned with allocation of profits To enhance the wealth of shareholders

Objectives of Financial Management

a. Financial objectives b. Non-Financial Objectives

Financial objectives or Financial Goals

Profit maximization (profit after tax) Maximizing EPS(earnings Per Share) Wealth Maximization.

Profit Maximization
Maximizing the Rupee Income of Firm Resources are efficiently utilized Appropriate measure of firm performance Serves interest of society also

Objections to Profit Maximization

It is Vague It Ignores the Timing of Returns It Ignores Risk Assumes Perfect Competition

Shareholders Wealth Maximization

Maximizes the net present value. Fundamental objective maximize the market value of the firms shares

Maximizing EPS
Ignores timing and risk of the expected benefit. Maximizing EPS will not result in highest price for company's shares.

Non financial Objectives

General welfare of employees General welfare of society Fulfillment of responsibilities towards customers, suppliers etc. Leadership in R&D. Effective utilization of funds

Firms Mission & Objectives

Firms primary objective is maximizing the welfare of owners, but in operational terms, they focus on the satisfaction of its customers. Goals are missions and objectives are basic purposes of a firms exist

Finance Managers Role

Raising of funds Allocation of funds Profit planning Understanding capital markets

Role of Treasurer and Controller

Two more officersthe treasurer and the controllermay be appointed under the direct supervision of CFO to assist him or her. The treasurers function is to raise and manage company funds while the controller oversees whether funds are correctly applied.