Welcome to Scribd. Sign in or start your free trial to enjoy unlimited e-books, audiobooks & documents.Find out more
Standard view
Full view
of .
Look up keyword
Like this
0 of .
Results for:
No results containing your search query
P. 1
MB0045 FM Solved Winter Drive Assignment 2012

MB0045 FM Solved Winter Drive Assignment 2012

|Views: 234|Likes:
Published by Praveen Kolli

More info:

Published by: Praveen Kolli on Sep 10, 2012
Copyright:Attribution Non-commercial


Read on Scribd mobile: iPhone, iPad and Android.
download as DOC, PDF, TXT or read online from Scribd
See more
See less





Q1. What is financial management? Explain its importance.
Financial Management is the art and science of managing money. Regulatory and economicenvironments have undergone drastic changes due to liberalization and globalization of Indianeconomy. Financial Management of a firm is concerned with procurement and effectiveutilization of funds for the benefit of its stakeholders. It embraces all those managerial activitiesthat are required to procure funds at the least cost and their effective deploymentTraditionally, financial management was considered a branch of knowledge with focus on the procurement of funds. Instruments of financing, formation, merger and restructuring of firms andlegal and institutional frame work occupied the prime place in this traditional approach.The modern approach transformed the field of study from the traditional narrow approach to themost analytical nature. The core of modern approach evolved around the procurement of the leastcost funds and its effective utilization for maximization of share holders’ wealth.There are three core elements of financial management show its importance are:
a. Financial Planning
Financial Planning is to ensure the availability of capital investments to acquire the real assets.Real assets are land and buildings, plants and equipments. Capital investments are required for establishing and running the business smoothly.
b. Financial Control
Financial Control involves managing the costs and expenses of a business. For example, it includestaking decisions on the routine aspects of day to day management of collecting money due from thefirms’ customers and making payments to the suppliers of various resources.
c. Financial Decisions
Decision needs to be taken on the sources from which the funds required for the capitalinvestments could be obtained.
There are two sources of funds – debt and equity. In what proportion the funds are to beobtained from these sources is to be decided for formulating the financing plan.
Q2. What is meant by capital budgeting? Explain the importance of capital budgeting.
Capital budgeting is the process by which the financial manager decides whether to invest inspecific capital projects or assets. In some situations, the process may entail in acquiring assetsthat are completely new to the firm. In other situations, it may mean replacing an existingobsolete asset to maintain efficiency.According to Larence J Gitman (Principles of Managerial Finance), Capital budgeting is the process of evaluating and selecting long-term investments that are consistent with the firms goalof maximizing owner wealth.
Importance of Capital Budgeting
Capital budgeting decisions are the most important decisions in corporatefinancial management.These decisions make or mar a business organization. These decisions commit a firm to invest itscurrent funds in the operating assets (i.e. long-term assets) with the hope of employing them mostefficiently to generate a series of cash flows in future. These decisions could be grouped into:
Decision to replace the equipments for maintenance of current level of business or decisionsaiming at cost reductions, known as replacement decisions
Decisions on expenditure for increasing the present operating level or expansion throughimproved network of distribution
Decisions for production of new goods or rendering of new services
Decisions on penetrating into newgeographical area 
Decisions to comply with the regulatory structure affecting the operations of the company, likeinvestments in assets to comply with the conditions imposed byEnvironmental ProtectionAct
Decisions on investment to build township for providing residentialaccommodation toemployees working in a manufacturing plant The reasons that make the capital budgetingdecisions most crucial for finance managersare:
These decisions involve large outlay of funds in anticipation of cash flows in future For example, investment in plant and machinery. The economic life of such assets has long periods. The projections of cash flows anticipated involve forecasts of many financialvariables. The most crucial variable is thesales forecast.
Q3. Describe the concept of working capital.
Money required by the company to meet out day – today expenses to finance production andstocks to pay wages and other production etc. is called the
working capital
of the company.Working capital is used in operating the business. It is mostly dept is circulation by releasing it back after selling the products and reinvesting it in further production. It is because of this regular cycle that the working capital requirements are usually for short periods. Though, both fixed andworking capitals shall be recovered from the business, the differences lies in the rate of their recovery. Working capital shall be recovered much more quickly as compared to fixed capitalswhich would last for several years. As the process of production become more roundabout andcomplicated the production to fixed working capital increase correspondingly.
Concepts of Working Capital
The four most important concepts of working capital are: –Gross working capital, Net workingcapital, Temporary working capital and Permanent working capital.
Net working
Temporary Permanent
working capital
Gross working capital
Gross Working Capital refers to the amounts invested in various components of current assets.This concept has the following practical relevance.
Management of current assets is the crucial aspect of working capital management
Gross working capital helps in the fixation of various areas of financial responsibility

You're Reading a Free Preview

/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->