FINANCIAL MANAGEMENT

Financial management entails planning for the future of a person or a business enterprise to ensure a positive cash flow. It includes the administration and maintenance of financial assets. Besides, financial management covers the process of identifying and managing risks. The primary concern of financial management is the assessment rather than the techniques of financial quantification. A financial manager looks at the available data to judge the performance of enterprises. Managerial finance is an interdisciplinary approach that borrows from both managerial accounting and corporate finance. Some experts refer to financial management as the science of money management. The primary usage of this term is in the world of financing business activities. However, financial management is important at all levels of human existence because every entity needs to look after its finances. From an organizational point of view, the process of financial management is associated with financial planning and financial control. Financial planning seeks to quantify various financial resources available and plan the size and timing of expenditures. Financial control refers to monitoring cash flow. Inflow is the amount of money coming into a particular company, while outflow is a record of the expenditure being made by the company. Managing this movement of funds in relation to the budget is essential for a business. 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. Businesses also seek to generate substantial amounts of profits, following a particular set of financial processes. Financial managers aim to boost the levels of resources at their disposal. Besides, they control the functioning on money put in by external investors. Providing investors with sufficient amount of returns on their investments is one of the goals that every company tries to achieve. Efficient financial management ensures that this becomes possible.

OBJECTIVES OF FINANCIAL MANAGEMENT

The primary aim of financial management is to maximise the wealth of shareholders. Shareholders are interested in wealth maximisation which depends upon the market price of the shares. If the market price of the shares increases, there is appreciation in the shareholders wealth and vice versa. Thus the major goal of financial management is to maximise market price of equity shares of the company. This goal could be achieved by taking finacial decision which are desirable for the growth of the company. The finance manager in a company makes decisions for the shareholders. He must implement financial decision which will ultimately prove gainful from the point of view of shareholder. The shareholders gain if the value of shares increases in the market. However, this maximisation of the price of companys equity shares should be in the long run. Goal of Profit maximization. Maximization of profits is generally regarded as the main objective of a business enterprise. Each company collects its finance by way of issue of shares to the public. Investors in shares purchase these shares in the hope of getting medium profits from the company as dividend It is possible only when the company's goal is to earn maximum profits out of its available resources. If company fails to distribute higher dividend, the people will not be keen to invest their money in such firm and persons who have already invested will like to sell their stocks. On the other hand, higher profits are the barometer of its efficiency on all fronts, i.e., production, sales an management. A few replace the goal of 'maximization of profits' to 'fair profits'. 'Fair Profits' means general rate of profit earned by similar organisation in a particular area. Goal of Return Maximization. The second goal 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. The all such interested parties must get the maximum return for their contributions. But this is possible only when the company earns higher profits or sufficient

profits to discharge its obligations to them. Therefore, the goal of maximization of returns are inter-related. Goal of Wealth Maximization: It is commonly agreed that the objective of a firm is to maximize value or wealth. Value of a firm is represented by the market price of the company's common stock. The market price of a firm's stock represents the focal judgement of all market participants as to what the value of the particular firm is. It takes in to account present and prospective future earnings per share, the timing and risk of these earning, the dividend policy of the firm and many other factors that bear upon the market price of the stock. Market price acts as the performance index or report card of the firm's progress. Prices in the share markets are largely affected by many factors like general economic outlook, outlook of particular company, technical factors and even mass psychology. Normally this value is a function of two factors as given below, The anticipated rate of earnings per share of the company The capitalization rate. The likely rate of earnings per shares (EPS) depends upon the assessment as to how profitably a company is growing to operate in the future. The capitalization rate reflects the liking of the investors for the company. Besides these, the other objectives of financial management are as follows: (i) To procure sufficient funds for the business. (ii) To ensure effective utilisation of funds. (iii) To ensure safety of funds. (iv) To attain optimum capital structure. (v) To ensure adequate return to the shareholders.

PERSON HANDLING FINANCIAL MANAGEMENT SHOULD ALSO

1. Interpret financial reports including income statements, Profits and Loss or P&L, cash flow statements and balance sheet statements 2. Improve the allocation of working capital within business operations 3. Review and fine tune financial budgeting, and revenue and cost forecasting 4. Look at the funding options for business expansion, including both long and short term financing 5. Review the financial health of the company or business unit using ratio analyses, such as the gearing ratio, profit per employee and weighted cost of capital

6. Understand the various techniques using in project and asset valuations 7. Apply critical financial decision making techniques to assess whether to proceed with an investment 8. Understand valuations frameworks for businesses, portfolios and intangible assets

SCOPE OF FINANCIAL MANAGEMENT

Financial management provides a conceptual and analytical framework for financial decision making. The finance function covers both acquisition and allocation of funds. The main concern of financial management is the efficient and wise allocation of funds to various uses. Alternatively the principle content of modern approach to financial management can be said to be: 1. How large an enterprise should be and how fast should it grow? 2. In what form should it hold assets? 3. What should be the composition of its liabilities? Thus financial management in the modern sense of the term can be broken down into three major decisions as functions of finance: Investment decision The financing decision The dividend policy decision