Financial management meaning

Management of flow of funds

Sourcing of funds

Effective utilization of funds

Coordination with other factors of production

Financial and managerial decision making

FINANCIAL MANAGEMENT - Meaning

There are 2 Approaches to FM

TRADITIONAL APPROACH

MODERN APPROACH

SCOPE OF FINANCIAL MANAGEMENT

Outsider-looking in approach No internal Financial decision making Consideration for mergers, acquisitions and re-organization Concept of working capital ignored

TRADITIONAL APPROACH

Effective funds utilization Concentration only onInvestmentFinancingDividend decisionsCapital StructureRisk ManagementProfitability Management

MODERN APPROACH

Profit Maximization

Wealth Maximization

OBJECTIVES OF FM

Measures the business efficiency

Resources allocation and utilization

Calculates Return on Investment

Motivates business growthSocial and economic

welfare improved

PROFIT MAXIMIZATION

Vague

Ignores Time Value of Money

Ignores Risk Factor

CRITICISMS

Increase in Net Present Worth

Finance Decision

Investment Decision

Dividend Decision

Return Maximization

Supports decision making

Risk management

Efficient resource management

Compliance with rules and regulations

Other Objectives

Forecasting financial requirements Financing Decisions – equity and debt Investment Decisions – short and long

term Dividend Decision – Ploughing back of

profits - Re-investment - Declaration of dividendsSupply of funds to all departments

FUNCTIONS OF A FINANCE MANAGER

Evaluating financial performance

Compliance to relevant Acts

Close observation of stock exchange quotations

Identifying the liquidity, risk, profitability and returns of the investment

Functions – contd…

Optimizing output based on inputs of funds Ascertainment of financial performance of

the firm Coordinates the various functions in an

organization Aids decision making Mobilises corporate and individual savings Helps in profit planning, cost control,

inventory management

IMPORTANCE OF FINANCIAL MANAGEMENT