Arrangement of funds from financial institutionsArrangement of funds through financial instruments like share, bonds etc/.Looking after the legal and accounting relationship between a corporation and its sources of funds.
It has been criticised for its overconcentration on the most infrequent episodic events, like liquidations and mergers and ignorance of routine problems.The above approach took into account only the viewpoint of suppliers of funds, that is outsiders, bankers, investors, etc. And not the Finance manager's viewpoint.It focused attention only on the financial problems of corporate enterprises.It laid over emphasis on the problems of long-term financing and ignore the problems relating to financing short-term or working capital.
Money required for carrying out business
activities is called business Finance.
Financial management is concerned with
optimal procurement as well as usage of
The approach to the scope and functions
of financial management is divided for the
purpose of exposition into two broad
The traditional approach, which was
popular in the early stage, limited the role
of financial management to raising and
administering of funds needed by the
corporate enterprises to meet their financial
Main limitations of Traditional
Ignored routine problems.
Ignored finance manager’s viewpoint.
Ignored non-corporate enterprise.
No Emphasis on allocation of funds.
According to modern approach the term
financial management provides a
conceptual and analytical framework for
The financial management can be further
classified into three major decisions:
The financing decision.
The investment decision.
The dividend decision.
Cost of capitalWorking Capital
These decisions relate to how the firm’s
funds are invested in different assets so
that they are able to earn the highest
possible return for their investors.
Cash flows of the project.
The rate of return.
The investment criteria involved
This is about the quantum of finance to be
raised from various long-term sources.
The main sources of funds are
shareholders funds and borrowed funds.
Cash flow position of the business
Dividend is that portion of profits, which is
distributed to shareholders.
The decision made here is how much of
the profit is to be distributed to the
shareholders and how much of it should
be retained to meet the investment
Stability of earnings.
Stability of dividend.
Efficient financial management requires the
existence of some objectives which are as
Financial planning is essentially preparation
of a financial blueprint of an organisation's
It tries to forecast what will happen in
future under different business situations.
It helps in avoiding business shocks and
It helps in co-ordinating various business
Fixed capital refers to investment in long-
It affects the growth, profitability and risk
of the business in the long run.
Long-term growth and efficiency.
Large amount of funds involved.
Nature of business.
Scale of operations.
Choice of technique.
Working capital are the investments which
facilitate smooth day-to-day operations
of a business.
Working capital is usually more liquid, but
contribute less to the profits than fixed
Nature of business.
Scale of operations.
Types of business finance
Finance used in business is of following
Instruments of finance
A business form can raise funds from two
Issue of shares is the most important source
of raising long term finance
Types of shares
There are two types of shares.
Retained profits refer to the profits which
have not been distributed as
dividends, but have been For use in
Retained profits are also known as
reserves or surplus
A debenture is a document or certificate
issued by a company under its seal as an
acknowledgement of its debt
Loan or equity capital provided by
a financial institution, instead of by one or
Public deposits were to the deposits
received by a company from the public as
Find finance refers to the Finance
reached from commercial banks.
Commercial banks are an important
source of short-term and medium-term