Introduction:

Financial management sees the objective of teaching financial management to be to help

managers and potential managers to make sensible investment and financing decisions.

Acknowledges that financial theory teaches that investment and financing decisions should be

based on cash flow and risk. Provides information on payback period; return on capital

employed, earnings per share effect, working capital, profit planning, standard costing, financial

statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the

traditionalists with the ideas of the financial theorists to form a balanced approach to practical

financial management for MBA students, financial managers and undergraduates.

financial management focuses on ratios, equities and debts. It is useful for portfolio

management,distribution of dividend,capital raising,hedging and looking after fluctuations in

foreign currency and product cycles.Financial managers are the people who will do research and

based on the research, decide what sort of capital to obtain in order to fund the company's assets

as well as maximizing the value of the firm for all the stakeholders. It also refers to the efficient

and effective management of money (funds) in such a manner as to accomplish the objectives of

the organization. It is the specialized function directly associated with the top management. The

significance of this function is not seen in the 'Line' but also in the capacity of the 'Staff' in

overall of a company. It has been defined differently by different experts in the field.

The term typically applies to an organization or company's financial strategy, while personal

finance or financial life management refers to an individual's management strategy. It includes

how to raise the capital and how to allocate capital, i.e. capital budgeting.
Need of the study:
Financial management focuses on ratios, equities and debts. It is useful for portfolio

management,distribution of dividend,capital raising,hedging and looking after fluctuations in

foreign currency and product cycles.Financial managers are the people who will do research

and based on the research, decide what sort of capital to obtain in order to fund the company&

assets as well as maximizing the value of the firm for all the stakeholders. It also refers to the

efficient and effective management of money (funds) in such a manner as to accomplish the

objectives of the organization. It is the specialized function directly associated with the top

management. The significance of this function is not seen in the &Line& but also in the capacity
of

the &Staff& in overall of a company. It has been defined differently by different experts in the

field.

The term typically applies to an organization or company&financial strategy, while personal

finance or financial life management refers to an individual& management strategy. It includes

how to raise the capital and how to allocate capital, i.e. capital budgeting. Not only for long

term budgeting, but also how to allocate the short term resources like current liabilities. It also

deals with the dividend policies of the share holders.

Features:
1- Management of general accounting procedures:

Financial Management System is software that manages all accounting procedures of the

business such as cash flow management, general ledger, expense, payments, and purchasing. It

efficiently manages all financial administrative processes.

2- Management of expense:

The financial management system of Solution Dots Systems manages the expense of

organization into the form of documentation, it contains all information regarding the

expenditure requirements, necessities, and funds etc.

3- Manage the budget:

It helps in the management of budget control. It keeps the record of all financial statements

that help in knowing about the current budget of the organization and also helps in making

decisions to control the budget efficiently.

4- Efficient management of time and work:

Financial management system helps in the management of time and work efficiently. It allows

managing more work in less time efficiently.

5- Advanced reporting:

Financial management system has an ability to generate reports such as profit and loss

statements, balance sheet, and other financial statements rapidly. It allows the user to

customize reports according to their demand and requirement.

6- Ensure data security:

Financial management system developed by Solution Dots System ensures its access to the only

authorized user. We understand that accounts data is important as well as confidential

therefore financial management system keeps it secure from unauthorized person.

7- Reduced the paperwork:

Financial management system maintains and updates all records and invoices automatically,

online record management reduces the paperwork. Now there is no need to update and

maintain manual records.

8- Complete Audit:

Financial management system maintains and updates the accurate and complete audit of the

organization.

9- Data Integrity:

Financial management system ensures data consistency and accuracy in all records updated by

different departments. Conclusion:

Solution Dots Systems has developed an excellent solution for accounting problem in the form

of the Financial Management System. It allows business and clients to get an advantage with

different tools and technology. It makes it easy to check and increase the progress of business

on a daily basis. It maximizes customer satisfaction and minimizes human efforts.

The team of Solution Dots Systems understands the market competition and their financial

management system comes up to the market requirements and strategies

Objectives:
Objectives of Financial Management

The financial management is generally concerned with procurement, allocation and control of

financial resources of a concern. The objectives can be-

To ensure regular and adequate supply of funds to the concern.

To ensure adequate returns to the shareholders which will depend upon the earning capacity,

market price of the share, expectations of the shareholders.

To ensure optimum funds utilization. Once the funds are procured, they should be utilized in

maximum possible way at least cost.

To ensure safety on investment, funds should be invested in safe ventures so that adequate

rate of return can be achieved.

To plan a sound capital structure-There should be sound and fair composition of capital so that

a balance is maintained between debt and equity capital.

Advantages and disadvantages:

Businesses have many areas to manage to keep things working smoothly. Finance is just one of
these areas. Because finances impact virtually everything else the company does, it's probably
the most important thing a manager must address. However, there are both advantages and
disadvantages to financial management in business. Usually the pros outweigh the cons, but
managers still must be prepared to face the negative consequences of tracking the money a
business has and spends.

Research, Time and Knowledge

Financial management requires a significant amount of information, which takes time to collect.
Once the data is gathered, you must take time to analyze it properly and discuss it with others
involved. If you aren't sure how to approach a financial question, you must either learn about it
or call in an expert, especially as company objectives change or the market shifts.
Cost
The expertise, information and time involved with financial management has a very real price
tag your company must take into account. You must pay those in your accounting department or
the consultants you hire, and even if you handle the finances of the business alone, you cannot
work for free.

Revision and Attention

The financial needs and situation of a business shift constantly, based on market variables and
the results of internal controls. For example, you may find that the cost of a part rose 10 cents
from the previous budget period -- this drives up your cost of production and forces you to
evaluate your budget. Financial management, therefore, is not a do-it-and-leave-it task. You must
revisit it and do so often.

Power
Managers often have to make the final call on where money goes in a business. Employees may
take it personally if you don't allot money to them or their projects. This can lead to bad relations
within the company.

Money Availability
When you manage your finances well, you know exactly what you're spending and what you're
earning. You also know when funds will be available. With this knowledge, it's much less likely
that you'll run into debt or be unable to pay back what you already owe. You know that money
will be available when you need it.

Planning
When you manage your business funds,

Proper financial management usually means that a company can grow in one or more areas, or at
the very least, remain stable. It also provides you with an opportunity to follow through on your
policies and plans. When these things happen, your employees and investors may have more
confidence in you as a business leader. This often translates into continued loyalty.

reviewing the financial data allows you to identify specific trends and make some forecasts for
the future. Because your finances connect directly to what you can do in the business, this lets
you develop new strategies for your operations and plan what you're going to do from both the
short- and long-term perspectives. You also can assess your areas of risk and take steps to fix
problems.

Accountability
Financial management forces you and everyone else in the business to make a case for
everything on which they're spending. With proper financial controls, you also can prevent
instances of fraud. Financial management thus is a major tool for keeping everyone in your
business accountable.

Confidence
Proper financial management usually means that a company can grow in one or more areas, or at

the very least, remain stable. It also provides you with an opportunity to follow through on your

policies and plans. When these things happen, your employees and investors may have more

confidence in you as a business leader. This often translates into continued loyalty.

Scope and nature :

Financial management is one of the important aspects in finance. Nobody can ever think to start

a business or a company without financial knowledge and management strategies. Finance links

itself directly to several functional departments like marketing, production and personnel. Here

we will list out some of the major scope of financial management notes and nature of financial

management which will help you in your decision making process. Scope of Financial

Management: Key scope of financial management are divided in four categories. Lets learn and

understand about the nature and scope of financial management through the below details notes.

1. Investment Decision: Evaluating the risk involved, measuring the cost of fund and estimating

expected benefits from a project comes under investment decision. It is one of the important

scope of financial management. The two major components of investment decision are – Capital

budgeting and liquidity. Capital budgeting is commonly known as the investment appraisal. It
deals with the allocation of capital and funds in such a manner that they will yield earnings in

future. Capital budgeting determines the long term investment which includes replacement and

renovation of old assets. It is all about maintaining an appropriate balance between fixed and

current assets in order to maximize profitability and to maintain desired liquidity in the firm for

its smooth functioning.

2. Working Capital Decision: Decisions related to working capital is another crucial scope of

financial management. Decisions involving around working capital and short term financing are

known as working capital decision. It also manages the relationship between short term assets

and its liabilities. Short term assets include cash in hand, receivables, inventory, short-term

securities, etc. Creditors, bills payable, outstanding expenses, bank overdraft, etc are a firm’s

short term liabilities. Short term assets can be exchanged with cash within one calendar year.

Similarly, the liabilities are to be settled within an accounting year.

3. Dividend Decision: The Dividend Decision plays a crucial role in today’s corporate era. It

determines the amount of taxation that stockholders pay. A good dividend policy helps to

achieve the objective of wealth maximization. Distributing the entire profit in the form of

dividends or distributing only a certain percentage of it is decided by dividend policy. It is

known as deciding the optimum dividend payout ratio i.e. proportion of net profits to be paid out

to shareholders. Stability of cash dividends and stock sets the parameter which determines the

number of investment opportunities. Expansion of an economic activity depends on effectiveness

of dividend decisions and scope of financial management.

4. Financing Decision: Financing Decisions focuses on the accountabilities and stockholders’

equity side of the firm’s balance sheet, for example decision to issue bonds is a kind of financing

decision. The main aim of financing decision is to cover expenses and investments. The decision
involves generating capitals by various methods, from different sources, in relative proportion

and considering opportunity costs, with respect to time of flotation of securities, etc. Scope of

financial management is to meet the expenses of the firm, a suitable capital structure for the

enterprise should be developed by the finance manager. Only an optimum finance mix can

maximize the market price of the company’s shares in the long run. To decrease the risk, a stable

equilibrium is required between debt and equity. Return and risk to the equity shareholders

depends on how optimally the debts and financial leverages are used. Only when the risk and

return are in synchronization, the market value per share is maximized. The apt timing for raising

funds is to be decided by the financial manager time to raise the funds.

Investment Decisions– Includes investment in fixed assets (called as capital budgeting).

Investment in current assets is also a part of investment decision called as capital decisions.
Financial Decisions– They relate to the raising of finance from various resources which will
depend upon the type of sources, the period of financing, the cost of financing and the return
thereby.
Dividend Decision– The finance manager has to take the decision with regard to the net
profit distribution. Net Profit is generally divided into two:

 The dividend for Shareholders- Dividend and the rate of it had to be decided.
 Retained Profit- Amount of retained profit has to be finalized which will depend upon
expansion and diversification plan of the enterprise.
Nature of Financial Management: Finance management is a long term decision making

process which involves lot of planning, allocation of funds, discipline and much more. Let us

understand the nature of financial management with reference of this discipline.

1. Primary nature of financial management focus towards valuation of company. That is the

reason where all the financial decisions is directly linked with optimizing / maximization the

value of a company. Finance functionality like investment, distribution of profit earnings, rising

of capital, etc. are the part of management activities.

2. Nature of financial management basically involves decision where risk and return are linked

with investment. Generally high risk investment yield high returns on investments. So, role of

financial manager is to effectively calculate the level of risk company is involve and take the

appropriate decision which can satisfy shareholders, investors or founder of the company.

3. Finance is a foundation of economic activities. The person who Manages finance is called as

financial manager. Important role of financial manager is to control finance and implement the

plans. For any company financial manager plays a crucial role in it. Many times it happens that

lack of skills or wrong decisions can lead to heavy losses to an organization.

4. Financial Management is an important function in company’s management. Financial factors

are considered in all the company’s decisions and all the departments of an organization. It

affects success, growth and volatility of a company. Finance is said to end up being the lifeline

of a business.

5. Finance management is one of the important education which has been realized word wide.

Now a day’s people are undergoing through various specialization courses of financial

management. Many people have chosen financial management as their profession.

6. The nature of financial management is never a separate entity. Even as an operational manager

or functional manager one has to take responsibility of financial management.

7. Nature of financial management is multi-disciplinary. Financial management depends upon

various other factors like: accounting, banking, inflation, economy, etc. for the better utilization

of finances.

8. Approach of financial management is not limited to business functions but it is a backbone of

commerce, economic and industry.

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.

1. NATURE OF FINANCIAL MANAGEMENT

2. Illustrate the organization of finance function Discuss agency problems arising from the

relationship between shareholders and managers Focus on the Shareholders’ Wealth

Maximization (SWM) principle as an operationally desirable finance decision criterion Review

the changing role of the finance manager and his/her position in the management hierarchy

Explain the nature of finance and its interaction with other management functions

3. Finance Marketing Production Important Business Activities

4.Financial Assets are also called securities, are financial papers or instruments such as shares

and bonds or debentures. Intangible real assets include technical know-how, technological

collaborations, patents and copyrights. Tangible real assets are physical assets that include plant,

machinery, office, factory, furniture and building. Real Assets: Can be Tangible or Intangible

Real And Financial Assets

5. Loans, Bonds or Debts: represent liability of the firm towards outsiders. Lenders are not

owners of the company. These provide interest tax shield. Preference Shares , Equity Shares

represent ownership rights of their holders. Shareholders are owners of the company. Shares can

of two types :Equity and Borrowed Funds

6. They also have preference of repayment at the time of liquidation. They get fixed rate of

dividends. Preference Shares have preference for dividend payment over ordinary shareholders.

There is no legal obligation to pay dividends to equity shareholders. Do not have fixed rate of

dividend. Equity Shares are also known as ordinary shares. Equity and Preference Shares

7. Financial policies are devised to fit production and marketing decisions of a firm in practice.

Finance function makes money available to meet the costs of production and marketing

operations. All business activities involve acquisition and use of funds. Finance and Management

Functions

8. Short-term financial decisions • Short-term asset-mix or liquidity decision or working capital

management. Long-term financial decisions • Long-term asset-mix or investment decision or

capital budgeting decisions. • Capital-mix or financing decision or capital structure and leverage

decisions. • Profit allocation or dividend decision Finance Functions Finance functions or

decisions can be divided as follows

9.Taking care of the mechanical details of new out Custody and safeguarding of securities,

insurance policies and other valuable papers Supervision receipts and payments and

safeguarding of cash balances For effective finance function some routine functions have to be

performed. Some of these are: Financial Procedures and Systems Record keeping and reporting

side financing
10. Understanding Capital Markets Profit Planning Allocation of Funds Raising of Funds

Finance Manager’s Role

11. Wealth maximization Maximizing earnings per share Profit maximization (profit after tax)

Financial Goals

12. Serves interest of society also Appropriate measure of firm performance Resources are

efficiently utilized Maximizing the rupee income of firm Profit Maximization

13. Immoral Inappropriate Difficult Unrealistic In new business environment profit

maximization is regarded as Assumes Perfect Competition It Ignores Risk It Ignores the Timing

of Returns It is Vague Objections to Profit Maximization

14.Maximizing EPS implies that the firm should make no dividend payment so long as funds can

be invested at positive rate of return—such a policy may not always work. Market value is not a

function of EPS. Ignores timing and risk of the expected benefit Maximising PAT or EPS does

not maximise the economic welfare of the owners. Maximizing Profit after Taxes or EPS

15.Fundamental objective—maximize the market value of the firm’s shares. Benefits are

measured in terms of cash flows. Accounts for the timing and risk of the expected benefits.

Maximizes the net present value of a course of action to shareholders. Shareholders’ Wealth

Maximization

16. Upon what factor or factors should its value depend How much should a particular share be

worth? The financial manager must know, SWM requires a valuation model. Need for a

Valuation Approach

17. Risk-free rate is a compensation for time and risk premium for risk. The return and risk

relationship: Return = Risk-free rate + Risk premium Financial decisions of the firm are guided

by the risk-return trade-off. Risk-return Trade-off

18.Risk Return Trade-off Risk and expected return move in tandem; the greater the risk, the

greater the expected return.

19. Overview of Financial Management

20. In practice, managers may maximise their own wealth (in the form of high salaries and perks)

at the cost of shareholders. In theory, Managers should act in the best interests of shareholders.

There is a Principal Agent relationship between managers and shareholders. Agency Problems:

Managers Versus Shareholders’ Goals

21. Managers may avoid taking high investment and financing risks that Managers may perceive

their role as reconciling conflicting objectives of stakeholders. This stakeholders’ view of

managers’ role may compromise with the objective of SWM. Agency Problems: Managers

Versus Shareholders’ Goals This conflict is known as Agency problem and it results into

Agency costs. may otherwise be needed to maximize shareholders’ wealth. Such “satisfying”

behaviour of managers will frustrate the objective of SWM as a normative guide.

22. Agency costs include the less than optimum share value for shareholders and costs incurred

by them to monitor the actions of managers and control their behaviour. Agency Costs

23. Goals or objectives are missions or basic purposes of a firm’s existence. Wealth

maximization is more appropriately a decision criterion, rather than an objective or a goal. Firms

state their vision, mission and values in broad terms. Firms’ primary objective is maximizing the

welfare of owners, but, in operational terms, they focus on the satisfaction of its customers

through the production of goods and services needed by them.

24. The wealth maximization criterion would simply indicate whether an action is economically

viable or not. in the final decision-making, the judgement of management plays the crucial role.

The shareholders’ wealth maximization is the second- level criterion ensuring that the decision
meets the minimum standard of the economic performance. Financial Goals and Firm’s Mission

and Objectives

25. Centralisation of the finance functions can result in a number of economies to the firm. The

financial actions determine solvency of the firm Financial decisions are crucial for the survival of

the firm. Reason for placing the finance functions in the hands of top management Organisation

of the Finance Functions

26 . Organisation of Finance Function Organization for finance function Organization for finance

function in a multidivisional company

27. The financial officer may be known as the financial manager in some organizations while

in others as the vice-president of finance or the director of finance or the financial controller. The

exact organization structure for financial management will differ across firms Status and Duties

of Finance Executives

28. The treasurer’s function is to raise and manage company funds while the controller oversees

whether funds are correctly applied.