ALAY-AY, PRINCESS C.

4FM-2

1. What is financial management?

 Financial management refers to strategic planning, organization, administration and control of financial
companies in an organization or institute. It also includes the application of the administrative
principles on the financial assets of an organization while playing an important role in fiscal
management.

2. Define financial management. Explain its significance.

 Financial Management means planning, organizing, directing and controlling the financial activities
such as procurement and utilization of funds of the enterprise. It means applying general management
principles to financial resources of the enterprise. The significance of financial management is known
from the following aspects:-
o Applicability where a cash flow exists. The concept of cash flows is one of the central elements
of financial elements, planning, control and resource allocations. The following is important
because the company's financial health depends on the ability to generate sufficient cash to pay
your employees, suppliers, creditors and owners.
o Chances of Failure a firm having latest technology, sophisticated machinery, high caliber
marketing and technical experts etc. may fail to succeed unless its finances are managed on
sound principles of financial management. The strength of business lies in its financial
discipline.
o Return on Investment anybody invests his money will mean to earn a reasonable return on his
investment. The owners of business try to maximize their wealth. It depend on the amount of
cash-flows expected to be generated for the benefit of owners, the timing of these cash-flows
and the risk attached to these cash-flows.

3. Explain the various areas of financial management.

o Determining Financial Needs: A finance manager is supposed to meet financial needs of the
enterprise. For this purpose, he should determine financial needs of the concern. Funds are
needed to meet promotional expenses, fixed and working capital needs.
o Selecting the Sources of Funds: A number of sources may be available for raising funds. A
concern may resort to issue of share capital and debentures. Financial institutions may be
requested to provide long-term funds.
o Financial Analysis and Interpretation: The analysis and interpretation of financial statements is
an important task of a finance manager. He is expected to know about the profitability, liquidity
position, short-term and long-term financial position of the concern.
o Cost-Volume-Profit Analysis: is an important tool of profit planning. An increase or decrease in
volume of production will not influence fixed costs. Variable costs, on the other hand, vary in
direct proportion to change in production. Semi-variable costs remain constant for a period and
then become variable for a short period. These costs change with the change in output but not
in the same proportion.
o Capital budgeting is the process of making investment decisions in capital expenditures. It is an
expenditure the benefits of which are expected to be received over a period of time exceeding
one year.
o Working Capital Management: Working capital is the life blood and nerve centre of a business.
Just as circulation of blood is essential in the human body for maintaining life, working capital is
essential to maintain the smooth running of business.
o Profit planning and control is an important responsibility of the financial manager. Profit
maximization is, generally, considered to be an important objective of a business. Profit is also
used as a tool for evaluating the performance of management.
o Dividend Policy: Dividend is the reward of the shareholders for investments made by them in
the shares of the company. The investors are interested in earning the maximum return on
their investments whereas management wants to retain profits for further financing.
4. What is the nature of financial management?
Nature of financial management
The nature of financial management includes the following:
 Estimates capital requirements
 Decides capital structure
 Select source of fun
 Selects investment pattern
 Raises shareholders value
 Management of cash
 Apply financial controls −

5. Describe the evolution of financial management.

 Financial management emerged as a distinct field of study at the turn of this century. Its evolution may
be divided into three broad phases (though the demarcating lines between these phases are
somewhat arbitrary): the traditional phase, the transitional phase, and the modern phase.

6. Financial management – is it a science or an art.

 Financial management is both a science and an art. Its nature is nearer to applied sciences as it
envisages use of classified and tested knowledge as a help in practical affairs and solving business.
Theory of financial management is based on certain systematic principles, some of which can be tested
in mathematical equations like the law of physics and chemistry. Financial management contains a
much larger body of rules or tendencies that hold true in general and on the average. 

7. What are the key areas of financial management?

o Determining Financial Needs
o Selecting the Sources of Funds
o Financial Analysis and Interpretation
o Cost-Volume-Profit Analysis
o Capital budgeting
o Working Capital Management
o Profit planning and control
o Dividend Policy

8. Explain the role of the financial manager in the current scenario.

 The role of the financial manager, particularly in business, is changing in response to technological
advances that have significantly reduced the amount of time it takes to produce financial reports.
Financial managers’ main responsibility used to be monitoring a company’s finances, but they now do
more data analysis and advise senior managers on ideas to maximize profits. They often work on
teams, acting as business advisors to top executives.