Financial Management

PODSCORB of FinancePlanningOrganizingDirectingStaffingControllingRecruitingBudgeting

Meaning of Financial Management

Financial management is concerned with efficient use of

an important economic resources namely capital funds.

Scope of Financial ManagementScope of Financial Management considers two

approaches

Traditional ApproachIt relates to the initial stages of its

evolutionIt is confined only to procurement of funds The traditionalist considers

Financial Institutions – Place where they get the finance

Financial Instruments – Medium of Finance

CRITICISMIt ignores internal decision makingIgnored issue of working capital

financeIgnored allocation of funds

MODERN APPROACHIt views

Financial PlanningRaising of funds Utilization of funds andFinancial control

It considers Investment decision Financial Decision Dividend Decision

INVESTMENT DECISIONDetermination of total assets to be held in

the firmComposition of the assets andBusiness risk complexions

INVESTMENT DECISION

Classified into two broad groups

LONG TERM INVESTMENT DECISION

Also called as Capital BudgetingProcess of making investment decisions in

capital ExpenditureThe benefits of Expenditure which are

expected to received over a long period of time exceeding one year.

Assess the profitability of the project before committing the funds.

Proposals should be evaluated in terms of profitability, cost involved and the risks associated with the project.

SHORT TERM INVESTMENT DECISIONAlso called as Working Capital ManagementFund necessary to cover the cost of

operating the firmWorking capital policy which ensures higher

profitability, proper liquidity and sound structural health of the organisation.

FINANCIAL DECISIONDecide the best means of financing the

commitmentsConcerned how best to finance new assets

and best overall financial mix of the firm

DIVIDEND DECISIONHow much paid to the shareholders as a

dividend