Note: Each Question carries 10 marks. Answer all thequestions.
Question 1- What is Financial Management? Explain its importance.
Financial Management is the art and science of managing money. Regulatory andeconomic environments have undergone drastic changes due to liberalization and globalization of Indian economy. 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 theprocurement 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 least
cost 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 equipment. Capital investments are required forestablishing and running the business smoothly.
b. Financial Control
Financial Control involves managing the costs and expenses of a business. For example, itincludes taking decisions on the routine aspects of day to day management of collecting money
due from the firms’ 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.