2. OVERVIEW
•Financial management is an integrated decision making
process, concerned with acquiring, managing and financing
assets to accomplish overall goals within a business entity.
•Speaking differently, it is concerned with making decisions
relating to investments in long term assets, working capital,
financing of assets and so on.
3. WHAT IS FINANCIAL MANAGEMENT?
⚫Financial management capacity is a
cornerstone of organizational excellence.
⚫Financial management pervades the whole
organization as management decisions almost
always have financial implications.
4. MEANING OF FINANCIAL
MANAGEMENT
⚫Financial management entails planning for the future of a person or
a business enterprise to ensure a positive cash flow, including the
administration and maintenanceof financial assets.
⚫The primary concern of financial management is the
assessment rather than the techniques of financial
quantification.
⚫Someexperts refer to financial managementas the science of money
management.
5. COMPONENTS OF FINANCIAL
MANAGEMENT
• The five basic componentsof the Financial Management
Framework are:
⚫ Planning and Analysis
⚫ Assetand Liability Management
⚫ Reporting
⚫ Transaction Processing
⚫ Control
6.
7. IMPORTANCES
Financial management is concerned with procurement and utilization of
funds in a proper way. It is important because of the following
advantages:
1. Helps in obtaining sufficient funds ata minimumcost.
2. Ensureseffective utilizationof funds.
3. Tries togenerate sufficient profits to financeexpansion and
modernizationof the enterpriseand secure stable growth.
4. Ensures safetyof funds through creation of reserves, re-
investmentof profits, etc.
8. FINANCE FUNCTION
•The finance function relates to three majordecisions which
the finance manager has to take:
⚫Investment decisions
⚫Finance decisions
⚫Dividend decisions
9. OBJECTIVES OF FINANCIAL
MANAJEMENT
•The objectives or goals of financial management are-
(a)Profit maximization,
(b)Return maximization, and
(c)Wealth maximization.
10. CONT..
(1)Profit maximization: Maximization of profits is generally regarded
as the main objectiveof a business enterprise.
(2)Return Maximization: Anothergoal of financial management is to
safeguard the economic interest of the persons who are directly or
indirectly connected with the company, i.e., shareholders, creditors
and employees.
(3)Wealth Maximization: Maximization of profits is regarded as the
proper objective of the firm but it is not as inclusive a goal as that of
maximizing its value to its shareholders.
11. FINANCIAL MANAGEMENT LEVELS
•Broadly speaking, the process of financial management takes placeat
two levels:
⚫At the individual level, financial management involves tailoring
expensesaccording to the financial resourcesof an individual. From an
organizational point of view, the process of financial management is
associated with financial planning and financial control.
⚫At the corporate level, the main aim of the process of managing
finances is to achieve the various goals a company sets at a given point
of time.
12. FINANCIAL PLANNING
Financial planning means deciding in advance how much to spend,
on what to spend, according to the funds atyour disposal. Thus,
there are two aspects of financial planning:
How much funds are required to financecurrent and fixed assets
and future expansion project?
From where will these funds come?
Financial planning takes into consideration the growth, performance,
investmentsand requirementof funds for the business fora given
period of time.
15. EXECUTIVE FUNCTIONS
•These functions involve financial, investmentand dividend decision making.
• Executive functions involvethe following decisions:
⚫ Financial Forecasting
⚫ Investmentdecisions
⚫ Managing corporateasset structure
⚫ The managementof income
⚫ Managementof cash
⚫ Deciding about new sources of finance
⚫ Tocontactand carry negotiations for new financing
⚫ Analysis and appraisal of financial performance
⚫ Advising the top management
16. INCIDENTAL FUNCTIONS
•They are performed by low level assistants like accountants, account
assistantsetc. They include:
⚫ Record keeping and reporting
⚫ Preparationof various financial statements
⚫ Cash planning and itssupervision
⚫ Credit management
⚫ Custodyand safeguarding different financial securities etc.
⚫ Providing top management with informationon current and prospective
financial conditions of the business.
17. ROLE OF FINANCIAL MANAGEMENT
• Responsibilities of finance manager
• Business forecasting
• Determination of financial objectives, financial
policies and operational procedures
• Estimation of the capital requirements of the
business
• Designing the capital structure
• Determination of the proper sources of finance
