Unit
ini 01
it : Introduction
illis it ti ni to Financial
ti nine
I
Management
t mini
if
Meaning Significance of Financial Management
Financial Management as practiced
by corporate firms can be called
corporation finance or businessfinance It is an operational activityof a
business concerned with the
planning and controlling of a firm'sfinancial
resources It involves the acquisition financing management efficient
utilisation of the assets
of an enterprise with the aim ofachieving the
organisationalgoal ie manimisation
of the shareholders wealth Financial
Management is indispensable to any organisation as it helps in
financialplanning
acquisition offunds at minimum cost
proper use allocation offunds
improvingprofitability wealth of shareholders
increasing overall economic wealth ofthe nation
Functions
of Financial Management
Estimatingfinancial requirements thefirsttaskof a financial
estimate the shortterm
manager is to long term financial
Estimatingfinancialrequirements
requirements
of a business Forthispurpose he prepares plan
a financial
Decidingon thecapital
structure
the amount required assets as well as funds
Acquisition
of
f inancialresources for
purchasing fixed
Properutilisationoffunds
needed
for working capital The estimations should be based on sound
Propercashmanagement financial principles so that there are neither inadequate or excess
Analysingfinancialperformance
funds The inadequacyoffunds may adversely affect dayto day
Properuse of surpluses
management while excessfunds may temptmanagement to indulge in
extravagant activities
, Deciding on a capitalstructure a capital structure refersto the kind
andproportion ofdifferent securitiesfor raisingfunds Afterdeciding the
quantumoffunds required thefirm should decide the type of securities
it should optfor
Acquisition offinancial resources afterassessing the financial needs
andpreparation of a feasible capitalstructure an appropriate source of
finance is selected Funds may be raised through share
capital debentures
banks financial institutions public deposits etc Theneed purpose
cost involved
may be factors influencing the of a suitab
object selection
source offinance Example
ifmanagement doesn't want to dilute ownership
it mayoptfor debentures
if it doesn't want to tie down anetsas securit
it may optforpublicdeposits etc
Proper utilisation offunds though raising offunds is important its
effective utilisation is
just as important Thefunds should be used in su
a way that maximum benefit is derivedfrom them Thereturnshould
exceed cost
Proper Cash Management cash management is also an important task
of
thefinance manager Thecash managementshould be suchthatneither there
is shortage it nor it is idle
of shortage would
Any the creditworthin
damage
of the enterprise while idle cash would mean ineffective management
various controltechniques by th
Analysing a firmsperformance the use of
finance manager enables him to evaluate the financial performance and
take corrective measures by
comparison actual with standardperformanc
of
Financial control devices include Return on Investment BreakEven Analysis
ini 01
it : Introduction
illis it ti ni to Financial
ti nine
I
Management
t mini
if
Meaning Significance of Financial Management
Financial Management as practiced
by corporate firms can be called
corporation finance or businessfinance It is an operational activityof a
business concerned with the
planning and controlling of a firm'sfinancial
resources It involves the acquisition financing management efficient
utilisation of the assets
of an enterprise with the aim ofachieving the
organisationalgoal ie manimisation
of the shareholders wealth Financial
Management is indispensable to any organisation as it helps in
financialplanning
acquisition offunds at minimum cost
proper use allocation offunds
improvingprofitability wealth of shareholders
increasing overall economic wealth ofthe nation
Functions
of Financial Management
Estimatingfinancial requirements thefirsttaskof a financial
estimate the shortterm
manager is to long term financial
Estimatingfinancialrequirements
requirements
of a business Forthispurpose he prepares plan
a financial
Decidingon thecapital
structure
the amount required assets as well as funds
Acquisition
of
f inancialresources for
purchasing fixed
Properutilisationoffunds
needed
for working capital The estimations should be based on sound
Propercashmanagement financial principles so that there are neither inadequate or excess
Analysingfinancialperformance
funds The inadequacyoffunds may adversely affect dayto day
Properuse of surpluses
management while excessfunds may temptmanagement to indulge in
extravagant activities
, Deciding on a capitalstructure a capital structure refersto the kind
andproportion ofdifferent securitiesfor raisingfunds Afterdeciding the
quantumoffunds required thefirm should decide the type of securities
it should optfor
Acquisition offinancial resources afterassessing the financial needs
andpreparation of a feasible capitalstructure an appropriate source of
finance is selected Funds may be raised through share
capital debentures
banks financial institutions public deposits etc Theneed purpose
cost involved
may be factors influencing the of a suitab
object selection
source offinance Example
ifmanagement doesn't want to dilute ownership
it mayoptfor debentures
if it doesn't want to tie down anetsas securit
it may optforpublicdeposits etc
Proper utilisation offunds though raising offunds is important its
effective utilisation is
just as important Thefunds should be used in su
a way that maximum benefit is derivedfrom them Thereturnshould
exceed cost
Proper Cash Management cash management is also an important task
of
thefinance manager Thecash managementshould be suchthatneither there
is shortage it nor it is idle
of shortage would
Any the creditworthin
damage
of the enterprise while idle cash would mean ineffective management
various controltechniques by th
Analysing a firmsperformance the use of
finance manager enables him to evaluate the financial performance and
take corrective measures by
comparison actual with standardperformanc
of
Financial control devices include Return on Investment BreakEven Analysis
