Financial Management

FINANCIAL MANAGEMENT

Life blood Of Business –” Finance” By shahid kv

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 firm’s 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

Firm’s Mission & Objectives • Firm’s 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 firm’s exist

Finance Manager’s Role • Raising of funds • Allocation of funds • Profit planning • Understanding capital markets

Role of Treasurer and Controller • Two more officers—the treasurer and the controller—may be appointed under the direct supervision of CFO to assist him or her. • The treasurer’s function is to raise and manage company funds while the controller oversees whether funds are correctly applied.