Professional Documents
Culture Documents
MANAGEMENT
(Meaning ,Nature and Objectives)
Business Finance:
i) Business: ‘state of being busy’. It is
production and distribution of goods and
services for satisfying human wants.
Business Activities:
I. Production
II. Marketing
III. Finance
Financial Management
The process of raising, providing & administering
of all funds to be used in a corporate enterprise.
Definition:
It refers to that part of the management activity
which is concerned with the planning and
controlling of firm’s financial resources.
IMPORTANCE:
Financial Planning & successful promotion
Acquisition of funds at minimum cost
Proper use and allocation of funds
Sound financial decision
Improving profitability
Maximization of wealth
Promoting and mobilizing savings
Approaches:
The Traditional Approach :
Financial Planning
Raising of Funds
Allocation of Funds
Financial Control
Aims of Finance Function
I. Profit Maximization
Obvious objective
Barometer of measuring efficiency
Dynamic business and economic conditions
Growth of Business
Maximizes socio-economic objectives
Arguments Against:
Vague term
Ignores time value of money
Ignores risk
Ignores effect of dividend policy
In new business environment profit maximization
is regarded as:
Unrealistic
Difficult
Inappropriate
Immoral.
Wealth Maximization:
Stockholder’s current wealth in a firm = (Number of
shares owned) x (Current stock price per share)
Arguments in Favour:
Serves the interest of suppliers of loaned capital
Serves the interest of employees, Mgt & Society.
Serves shareholder’s interest
Serves short term lenders interest
Serves Long term lenders interest
Arguments Against:
Prescriptive idea
Not socially desirable
Controversy to maximize stockholder wealth or
firm’s wealth
Face difficulties when ownership & Mgt. are
separated