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Finanial Management

Finanial Management

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Published by: krishansingh869645 on Mar 21, 2010
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04/06/2011

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 1
FINANIAL MANAGEMENT
INTRODUCTION
The present age is the age of industrialization. Large industries are being establishedin every country. It is very necessary to arrange finance for building, plant andworking capital, etc. for the established of these industries. How much of capital will be required, from what sources this much of finance will be collected and how will it be invested, is the matter of financial management.Financial management is that managerial activity which is concerned with the planning and controlling of the firm¶s financial resources. It was a branch of economics till 1890, and as a separate discipline, it is of recent origin. Still, it has nounique body of knowledge of its own, and draws heavily on economics for itstheoretical concepts even today.In general financial management is the effective & efficient utilization of financialresources. It means creating balance among financial planning, procurement of funds, profit administration & sources of funds.
DEFINITIONS OF FINANCIAL MANAGEMENT
According to Solomon, ³
Financial management is concerned with the efficient use of an important economic resource, namely, capital funds.µ 
According to J. L. Massie, ³
Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operation.µ 
According to Weston & Brigham, ³
Financial management is an area of financial  
 
decision making harmonizing individual motives & enterprise goals.µ 
 According to Howard & Upton, ³
Financial management is the application of the planning & control functions of the finance function.µ 
According to J. F. Bradley, ³
Financial management is the area of business management devoted to the judicious use of capital & careful selection of sources of capital in order to enable a spending unit to move in the direction of reaching its goals.µ 
 
 2
MAIN FEATURES OF FINANCIAL MANAGEMENT
O
n the basis of the above definitions, the following are the main characteristics of thefinancial management-1.
 
Analytical Thinking-
Under financial management financial problems areanalyzed and considered. Study of trend of actual figures is made and ratioanalysis is done.2.
 
Co
ntinu
o
us Pr
o
cess-
 previously financial management was required rarely butnow the financial manager remains busy throughout the year.3.
 
B
asis
of 
Managerial Decisi
o
ns-
All managerial decisions relating to financeare taken after considering the report prepared by the finance manager.
 
Thefinancial management is the base of managerial decisions.4.
 
Maintaining
B
alance between Risk and Pr
of 
itability-
Larger the risk in the business larger is the expectation of profits. Financial management
 
maintains balance between the risk and profitability.5.
 
Coo
rdinati
o
n between Pr
o
cess-
There is always a coordination betweenvarious processed of the business.6.
 
C
entralized Nature-
Financial management is of a centralized nature.
O
ther activities can be decentralized but there is only one department for financialmanagement.
 
 3
AREAS/ SCOPE FINANCIAL MANAGEMENT
Financial management, at present is not confined to raising and allocating funds. Thestudy of financial institutions like stock exchange, capital, market, etc. is alsoemphasized because they influenced under writing of securities & corporate promotion. Company finance was considered to be the major domain of financialmanagement. The scope of this subject has widened to cover capital structure,dividend policies, profit planning and control, depreciation policies. Some of thefunctional areas covered in financial management are discussed as such-1.
 
Determining
inancial needs:-
A finance manager is supposed to meetfinancial needs of the enterprise. For this purpose, he should determinefinancial needs of the concern. Funds are needed to meet promotionalexpenses, fixed and working capital needs. The requirement of fixed assets isrelated to types of industry. A manufacturing concern will require moreinvestments in fixed assets than a trading concern. The working capital needsdepend upon scale of operations. Larger the scale of operations, the higher will be the needs for working capital. A wrong assessment of financial needs may jeopardize the survival of a concern.2.
 
C
h
oo
sing the s
o
urces
of 
 
unds:-
A number of sources may be available for raising funds. A concern may be resort to issue of share capital and debentures.Financial institutions may be requested to provide long-term funds. Theworking capital needs may be met by getting cash credit or overdraft facilities

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