Download - Financial management meaning
Management of flow of funds
Sourcing of funds
Effective utilization of funds
Coordination with other factors of production
Financial and managerial decision making
FINANCIAL MANAGEMENT - Meaning
There are 2 Approaches to FM
TRADITIONAL APPROACH
MODERN APPROACH
SCOPE OF FINANCIAL MANAGEMENT
Outsider-looking in approach No internal Financial decision making Consideration for mergers, acquisitions and re-organization Concept of working capital ignored
TRADITIONAL APPROACH
Effective funds utilization Concentration only onInvestmentFinancingDividend decisionsCapital StructureRisk ManagementProfitability Management
MODERN APPROACH
Profit Maximization
Wealth Maximization
OBJECTIVES OF FM
Measures the business efficiency
Resources allocation and utilization
Calculates Return on Investment
Motivates business growthSocial and economic
welfare improved
PROFIT MAXIMIZATION
Vague
Ignores Time Value of Money
Ignores Risk Factor
CRITICISMS
Increase in Net Present Worth
Finance Decision
Investment Decision
Dividend Decision
Return Maximization
Supports decision making
Risk management
Efficient resource management
Compliance with rules and regulations
Other Objectives
Forecasting financial requirements Financing Decisions – equity and debt Investment Decisions – short and long
term Dividend Decision – Ploughing back of
profits - Re-investment - Declaration of dividendsSupply of funds to all departments
FUNCTIONS OF A FINANCE MANAGER
Evaluating financial performance
Compliance to relevant Acts
Close observation of stock exchange quotations
Identifying the liquidity, risk, profitability and returns of the investment
Functions – contd…
Optimizing output based on inputs of funds Ascertainment of financial performance of
the firm Coordinates the various functions in an
organization Aids decision making Mobilises corporate and individual savings Helps in profit planning, cost control,
inventory management
IMPORTANCE OF FINANCIAL MANAGEMENT