MAIN FEATURES OF FINANACIAL MANAGEMENT:

Analytical Thinking:
Under financial management financial problems are analyzed and considered. Study
of trend of actual figures is made and ratio analysis is done.
Continuous Process:
previously financial management was required rarely but now the financial manager
remains busy throughout the year.
Basis of Managerial Decisions:
All managerial decisions relating to finance are taken after considering the report
prepared by the finance manager.The financial management is the base of
managerial decisions.
Maintaining Balance between Risk and Profitability:
Larger the risk in the business larger is the expectation of profits. Financial
management maintains balance between the risk and profitability.
Coordination between Processes:
There is always a coordination between various processed of the business.
Centralized Nature:
Financial management is of a centralized nature. Other activities can be
decentralized but there is only one department for financial management.

MAJOR FUNCTIONS OF FINANCIAL MANAGER:

Raising of Funds:
Allocation of Funds:
Profit Planning:
Understanding Capital Markets:

WORKING CAPITAL:
The working capital can be classified on the basis of concept and on the basis of
time

Working capital on the basis of time

Permanent working Capital

Temporary Working Capital

1) Permanent working capital:

it is also called fixed working capital. It means to carry on the day to day expenses
the firm is required to maintain the minimum amount of working capital. For
example the firm is required to maintain the minimum level of raw material, finished
goods or cash balance etc.
a) Regular working capital
It means the minimum amount which the firm has to keep with itself to carry on the
day to day operation.
b) Reserve working capital
It means the excess amount over the regular working capital for uncertain
circumstances like strike, lock out, depression etc.

2) Temporary working capital:

It is also called variable working capital, which is required to meet the seasonal
demands as well as for special purposes.
a) Seasonal working capital
It is required to meet the seasonal needs of the enterprise.
b) Special working capital
It is required for some special purposes of the enterprise. For example advertising
the product of the firm requires special working capital.

Working capital On the basis of concept:

Generally there are two concepts of working capital. They are gross working capital
and net working capital. But they are defined by different names. They are
explained below:
1) In broad sense:
working capital refers to gross working capital. It is also defined as financial
concept or going concern concept. It means the capital invested in the
current assets of the firm. Current assets mean the assets which can be
converted into cash easily or within one accounting period. It helps in
determining the return on investment in working capital and providing correct
amount of working capital at right time.
2) in narrow sense:

working capital refers to net working capital. It is also defined as accounting

concept. It means excess of current assets over current liabilities. It helps in
finding out firms capability to meet short term liabilities as well as indicates
the financial soundness of the enterprise.

IRR:
Internal rate of return (IRR) is the interest rate at which the net present value of all
the cash flows (both positive and negative) from a project or investment equal zero.
Internal rate of return is used to evaluate the attractiveness of a project
or investment. If the IRR of a new project exceeds a companys required rate of
return, that project is desirable. If IRR falls below the required rate of return, the
project should be rejected.
How it works/Example:
The formula for IRR is:

0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/

(1+IRR)n
where P0, P1, . . . Pn equals the cash flows in periods 1, 2, . . . n, respectively; and
IRR equals the project's internal rate of return.