FINANCIAL

MANAGEMENT
 WHAT IS FINANCE

 Finance is defined as the provision of money at

the time when it is required. Every enterprises
either big, medium, small needs finance to carry
on its operations & to achieve its targets.
 Finance is also said to be the lifeblood of an
enterprise.
 Without adequate finance no enterprise can
possibly accomplish its objectives.
 FINANCIAL MANAGEMENT

 Financial management refers to that part of the

management activity which is concerned with
the planning & controlling of firms financial
resources.

 It deals with finding out various sources for

raising funds for the firm.
 Financial management is applicable to every
type of organization, irrespective of its size,
kind or nature.

 It is useful to a small concern as to a big unit.

A trading concern gets the same utility from its

application as a manufacturing unit may
expect.
 AIM’S

 ACQUIORING SUFFICIENT FUNDS

 PROPER UTILISATION OF FUNDS

 INCREASING PROFITABILITY

 MAXISING FIRMS VALUE

 ACQUIRING SUFFICIENT FUNDS:-
The main aim is to assess the financial
needs of an enterprise & then finding out
suitable sources for raising them.

 PROPER UTILISATION OF FUNDS:-

The funds should be used in such a way
that maximum benefit is derived from them.
The return from their use should be more than
their cost. It should be ensured that funds do
not remain idle at any point of time.
 INCREASING PROFITABILITY:-
The planning & control of finance function
aims at increasing profitability of the concern.
Finance function should be so planned that the
concern neither suffers from inadequacy of
funds nor wastes more funds than required.

 MAXIMISING FIRM’S VALUE:-

Profitability influences a firms value but it is
not all. Besides profits, the type of sources used
for raising funds, the cost of funds, the
condition of money market, the demand for
products are some other considerations which
also influence a firms value.
 SCOPE

 ESTIMATING FINANCIAL REQUIREMENTS

 DECIDING CAPITAL STRUCTURE

 SELECTING A SOURCE OF FINANCE

 SELECTING A PATTERN OF INVESTMENT

 PROPER CASH MANAGEMENT

 IMPLEMENTING FINANCIAL CONTROLS

 PROPER USE OF SURPLUSES

 OBJECTIVES
 PROFIT MAXIMISATION:-
Profit earning is the main aim of every
economic activity. A business being an
economic institution must earn profit to cover
its costs & provide funds for growth. Thus,
profit maximization is considered as the main
objective of business.
 ADVANTAGES OF PROFIT
MAXIMISATION
 Profits are the main source of finance for the
growth of a business.
 Profitability is essential for fulfilling the goals
of an organization.
 Through profitability a business will be able to
survive under unfavorable situation.
 Profitability is a barometer for measuring
efficiency & economic prosperity of a
business enterprise.
 DISADVANTAGES OF PROFIT
MAXIMISATION
A firm pursuing the objective of profit
maximization starts exploiting workers & the
consumers.

 Itis immoral & leads to a number of corrupt

practices.
 WEALTH MAXIMISATION:-
Financial theory asserts that wealth
maximization is the single substitute for a
stockholder’s utility. When the firm
maximizes the stockholders wealth, the
individual stockholder can use this wealth to
maximize his individual utility. Every
financial decision should be based on “COST
BENEFIT ANALYSIS”, i.e. if the benefit is
more than the cost ,the decision will help in
maximizing the wealth & vice-versa.
 FINANCIAL DECISIONS
 Financial decisions refer to decisions
concerning financial matters of a business
firm. The three major decisions are:

 INVESTMENT DECISIONS
 FINANCING DECISIONS

 DIVIDEND DECISIONS
 INVESTMENT DECISIONS:-
Investment decisions relates to the
determination of total amount of assets to be
held in the firm, the composition of these
assets & the business risk complexions of the
firm as perceived by its investors. The
investment decisions can be classified under
two broad groups:

 LONG TERM INVESTMENT DECIOSIONS

 SHORT TERM INVESTMENT DECISION
 FINANCING DECISIONS:-

Firms regularly make new investments, it

must decide the best means of financing these
commitments. Hence, a firm will be
continuously planning for new financial needs.
The financial manager has to strike a balance
between various sources so that the overall
profitability of the concern improves.
 DIVIDEND DECISIONS:-

The term dividend refers to that part of

profits of a company which is distributed by it
among its shareholders. The dividend decision
is concerned with the quantum of profits to be
distributed among shareholder.