Академический Документы
Профессиональный Документы
Культура Документы
FINANCIAL MANAGEMENT
Meaning: Finance is said to be the life blood of business. Right from conceiving the idea of birth of business to its liquidation finance is required. So finance is the pivot around which whole business operations cluster.
Therefore, Financial management is concerned with the managerial decision that results in the acquisition of short term and long term credits for the business.
Study and analysis of financial instruments which can be used for raising funds. Estimation of requirement of finance. Limitations of traditional approach: Limited scope. Ignores working capital financing. Ignores routine problems. Limited use,only corporate enterprises.
Modern approach: It enlarged the scope of financial management and it includes: What is the total volume of the funds an enterprise should commit. What specific assets should an enterprise acquire. In what form should the firm hold its asssets.
Modern approach encompasses three major decisions, namely: Investment decisions Financing decisions Dividend policy decisions
Investment of funds. Dispersal of profits. Maintaining the proper liquidity. Maintaining relations with outside agencies. Evaluating financial performance. Keeping touch with stock exchange quotations and behaviour of share prices.
Leverage: Leverage means that how much debt should be incorporated so that equity share capital gets maximized. Cash management: It refers to a broad area of financeinvolving the collection, handling, and usage of cash.it involves assessing market liquidity,cash flows and investments. Recievables management: Recievables means current assets other than cash i.e. B/R, debtors etc.
Inventory management: Inventory management is very important function that determines the health of supply chain as well as the impact of financial health of the balancesheet.
FINANCIAL SYSTEM
A set of complex and closely connected institutions,agents,practices,markets, transactions,claims and liabilities in the economy. It is a market for creation and exchange of financial assets and servises. Indian financial system consists of financial markets, financial instruments, financial services, financial intermidiaries and regulatory frameworks.
It ensures smooth functioning of all financial markets. It helps individuals and corporates in managing and controlling risk.
Financial Intermediaries: Banks Financial intermediaries. Insurance companies. NFBCs Financial service providers.
Financial instruments: 1.Money market instruments. Commercial papers:Unsecured promissory notes with maturity period from 15 days to 1 year. Certificate of deposits: Also unsecured and issued by the companies with god credit worthiness. Treasury bills:Issued by RBI on the behalf of govt.,also known as zero-coupan bond
Call or term money:It is inter bank transaction in which banks borrow money for 1 day.Rate of interest is high in call or term money. 2. Capital market instruments: Equity shares. Preference shares(Hybrid security). Debentures. Bonds. Fixed deposits.
Profit maximization
This implies that the finance manager has to take decision in such a manner so that the profit of the concern are maximized. This can be increased by increasing sales turnover and minimizing the manufacturing and financial cost.
Wealth maximization
Wealth maximization means maximizing the wealth of the shareholders in terms of market value of the shares and value of the firm. It is regarded operationally and managerially better objective because it considers: Time value of money Risk or uncertainty Effect of dividend policy on MP of shares.
Difference between
Profit maximization Wealth maximization
It does not specify the time value of money. It does not consider the risk factor. It doe not consider the effect of dividend policy on market price of shares It ignores the interest of outsiders. It does not differentiate between long term and short term profits.
It takes into account the time value of money. It considers the risk the factor. It consider the effect of dividend policy on market price of shares. It considers the interest of outsiders. It considers the fact.
THANK YOU