FINANCIAL MANAGEMENT

Financial management entails planning for the future of a person or a business enterprise to ensure a positive cash flow. It includes the administration and maintenance of financial assets. Besides, financial management covers the process of identifying and managing risks. The primary concern of financial management is the assessment rather than the techniques of financial quantification. A financial manager looks at the available data to judge the performance of enterprises. Managerial finance is an interdisciplinary approach that borrows from both managerial accounting and corporate finance. Some experts refer to financial management as the science of money management. The primary usage of this term is in the world of financing business activities. However, financial management is important at all levels of human existence because every entity needs to look after its finances. From an organizational point of view, the process of financial management is associated with financial planning and financial control. Financial planning seeks to quantify various financial resources available and plan the size and timing of expenditures. Financial control refers to monitoring cash flow. Inflow is the amount of money coming into a particular company, while outflow is a record of the expenditure being made by the company. Managing this movement of funds in relation to the budget is essential for a business. At the corporate level, the main aim of the process of managing finances is to achieve the various goals a company sets at a given point of time. Businesses also seek to generate substantial amounts of profits, following a particular set of financial processes. Financial managers aim to boost the levels of resources at their disposal. Besides, they control the functioning on money put in by external investors. Providing investors with sufficient amount of returns on their investments is one of the goals that every company tries to achieve. Efficient financial management ensures that this becomes possible.

creditors and employees. Shareholders are interested in wealth maximisation which depends upon the market price of the shares. The finance manager in a company makes decisions for the shareholders.e. Each company collects its finance by way of issue of shares to the public. A few replace the goal of 'maximization of profits' to 'fair profits'. But this is possible only when the company earns higher profits or sufficient .. higher profits are the barometer of its efficiency on all fronts. 'Fair Profits' means general rate of profit earned by similar organisation in a particular area. The all such interested parties must get the maximum return for their contributions. Goal of Return Maximization. Thus the major goal of financial management is to maximise market price of equity shares of the company. The second goal of financial management is to safeguard the economic interest of the persons who are directly or indirectly connected with the company. On the other hand. However.OBJECTIVES OF FINANCIAL MANAGEMENT The primary aim of financial management is to maximise the wealth of shareholders. If company fails to distribute higher dividend. i. He must implement financial decision which will ultimately prove gainful from the point of view of shareholder. there is appreciation in the shareholders’ wealth and vice versa.shareholders. this maximisation of the price of company’s equity shares should be in the long run. i. production. Investors in shares purchase these shares in the hope of getting medium profits from the company as dividend It is possible only when the company's goal is to earn maximum profits out of its available resources.e. Maximization of profits is generally regarded as the main objective of a business enterprise. This goal could be achieved by taking finacial decision which are desirable for the growth of the company. The shareholders gain if the value of shares increases in the market. If the market price of the shares increases. Goal of Profit maximization. the people will not be keen to invest their money in such firm and persons who have already invested will like to sell their stocks. sales an management..

Prices in the share markets are largely affected by many factors like general economic outlook.profits to discharge its obligations to them. (v) To ensure adequate return to the shareholders. Value of a firm is represented by the market price of the company's common stock. the goal of maximization of returns are inter-related. The market price of a firm's stock represents the focal judgement of all market participants as to what the value of the particular firm is. the dividend policy of the firm and many other factors that bear upon the market price of the stock. outlook of particular company. Normally this value is a function of two factors as given below. The likely rate of earnings per shares (EPS) depends upon the assessment as to how profitably a company is growing to operate in the future. Goal of Wealth Maximization: It is commonly agreed that the objective of a firm is to maximize value or wealth. Therefore. (iv) To attain optimum capital structure. . technical factors and even mass psychology. The anticipated rate of earnings per share of the company The capitalization rate. (ii) To ensure effective utilisation of funds. Besides these. the timing and risk of these earning. It takes in to account present and prospective future earnings per share. Market price acts as the performance index or report card of the firm's progress. (iii) To ensure safety of funds. the other objectives of financial management are as follows: (i) To procure sufficient funds for the business. The capitalization rate reflects the liking of the investors for the company.

PERSON HANDLING FINANCIAL MANAGEMENT SHOULD ALSO 1. Review and fine tune financial budgeting. cash flow statements and balance sheet statements 2. Improve the allocation of working capital within business operations 3. Understand the various techniques using in project and asset valuations 7. Apply critical financial decision making techniques to assess whether to proceed with an investment 8. portfolios and intangible assets SCOPE OF FINANCIAL MANAGEMENT . Interpret financial reports including income statements. Profits and Loss or P&L. profit per employee and weighted cost of capital 6. Review the financial health of the company or business unit using ratio analyses. and revenue and cost forecasting 4. Look at the funding options for business expansion. Understand valuations frameworks for businesses. including both long and short term financing 5. such as the gearing ratio.

The main concern of financial management is the efficient and wise allocation of funds to various uses. Alternatively the principle content of modern approach to financial management can be said to be: 1. How large an enterprise should be and how fast should it grow? 2. What should be the composition of its liabilities? Thus financial management in the modern sense of the term can be broken down into three major decisions as functions of finance:  Investment decision  The financing decision  The dividend policy decision . The finance function covers both acquisition and allocation of funds.Financial management provides a conceptual and analytical framework for financial decision making. In what form should it hold assets? 3.

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