Role & Goal OF Financial

Management
Role of Financial Management

 Financial management—the art and science of managing a firm’s

money so that it can meet its goals.
 Every team of a company is related to finance.
 Functions of a financial management can be categorized into four
main functions. These are:
 Capital structure decision
 Investing and Financing Decision
 Budgeting

 The decision about dividend policy

Capital structure decision

 The main function of a financial management is to form an optimal

capital structure for the organization.
 Capital structure means the ratio of debt and equity
 Obtaining funding for the firm’s operations and investments
 Maintaining the best balance between debt and equity
 Preparing the financial plan
 Projects revenues
 Expenditures
 Financing needs over a given period.
Investing and Financing Decision

 Financial management always concern about the cost of collecting

funds and the return on the invested capital.
 Investing the firm’s funds in projects.
 Securities that provide high returns in relation to their risks.
Budgeting

 The object of budgeting is to plan and control the company’s

activities so as to maximize profitability
 This is usually drawn up before the beginning of each financial year
or season considering the sales to be established.
 Other budgets considered for Textile sector are:
 labor costs
 Material costs
 Overheads
 Departmental budgets
Dividend Policy

 After the profit or loss, an important decision is to provide the

dividend.
 As a function of managing funds, the financial management makes
a decision about dividend policy.
Additional financial activities for
Textile Industry:
 Garment Costing
 Administration
Textile Costing

 It is the ‘identity card’ of the Textile and contains all the information
required for the pre-production and production stages making
garments. The costing sheet shows the detailed costs for:
 Material
 Labor
 Fixed and variable overheads
 Other expenses.
Administration

In Textile Industry every department is related to finance

management.
 Preparing orders to supplies
 Checking goods inwards
 Timing and methods for stock taking
 Imports and exports
 Obtaining credits for returned goods and materials
 Issuing credits for customer returns
 Negotiating and issuing tenders for major projects
 Purchase of office furniture and equipment etc.
Role of Financial Management
Conclusion

 The finance department is responsible for managing all the financial

administrative affairs of the company and has a very important
influence on many of the policy and commercial decisions taken by
management.
 Apart from the money to pay suppliers, salaries, expenses, etc. funds
have to be on hand to finance stocks of raw materials and finished
goods
 In periods when trading is difficult and revenues are down, provision
has to be made to cover such periods.
Goal of the Financial Management

 The main goal of the financial management is to maximize the

value of the firm to its owners
 The value of a publicly owned corporation is measured by the share
price of its stock
 A private company’s value is the price at which it could be sold.
Goal of the Financial Management

1. Profit Maximization
2. Profitability Maximization
3. Wealth Maximization
4. EPS Maximization
5. Liquidity Maximization
6. Solvency Maximization
7. Minimization of Risk
8. Minimization of Cost of Capital
Profit Maximization Vs. Wealth Maximization:
Ultimate goal of Finance Management

 The definition of profit is vague where the definition of wealth is quite

clear
 Profit is calculated for one year where wealth is cumulated.
 Profit can be manipulated but wealth can’t be manipulated.
 Risk is not consider in profit where in wealth risk is calculated!
 Profit is short term where Wealth is a long term concept!

Considering, Wealth maximization is the ultimate goal of finance

management.