Hello Everyone, I welcome to you My Another Blog post. In our last blog post, we have talked about Why Communication is Important In Business . Thanks for giving so much love to that post. So, by Reading the Title, you have understood that Today, we are going to talk on Financial Management
So, Have You thought that what is the role of Finance Manager in the Business.
Is He/She deals with only Money ??
Not only This, The work Of Finance Manager has to manage and to allocate or use that finance in a manner so as to achieve our goals and control all the objectives in the Business.
So, Today you’ll get the whole Financial Management Notes
So, before knowing about the Financial Management, firstly we should know the Meaning of Finance .
Finance in Simple meaning, is the Money which we spend for our basic and other needs. Basically in Business Terms, finance is the life blood of the business.
Without finance, You can’t think about running the Business. It is required for both short term as well as Long term.
Financial Management Meaning
Financial Management is not only Acquiring the funds but allocating the funds in a manner to achieve the firm’s objectives.
Basically it’s simple meaning is to manage your finance or funds in a proper way.
So, now the question comes What are the Objectives of Financial Management
Objectives of Financial Management
There are only two objectives of Financial Management:
- Profit Maximization
- Wealth Maximization
Profit Maximization- In this, firms only objective is to Increase the profits and Profit is known through the price factor, that how the Demand and Supply affect the Price factor.
Here, the firm have to achieve the profits. They can even achieve the profit also by Selling the product on higher prices.
Drawbacks of this Objective-
- Confusing or vague in nature.
- It ignores the time value of money.
- Includes the Risk or uncertainty.
Wealth Maximization- In this, firm has the objective to Increase the Wealth of the Firm through NPV Method.
Its basically means to increase the Net Present value(NPV) of the firm.
NPV is the difference between present value of its benefits and present value of its Cost.
A Positive NPV increases the wealth of the firm and A Negative NPV decreases the wealth of the firm.
Between both Mutually exclusive events, the one with the Higher NPV got selected.
Nature of Financial Management
- Helps in Achieving the Objectives.
- Acquiring the relevant things.
- Optimum Utilization of funds.
- Controlling the operations.
- Profit Planning
- Helps in determining the demand for producing the products.
- CVP Analysis.
- Capital Budgeting.
Scope of Financial Management
- Cost of Capital
- Capital Structure
- Capital Budgeting
- Financial and Combined Leverages.
- Dividend Policy
- Working Capital Management
- Inventory Management
- Cash Management
- Receivable Management
Now come to the Functions of Financial Management, which means where it is helpful.
Functions of Financial Management-
There are two type of Functions for Financial Management that are for-
- Short Term
- Long Term
Short Term- Short Term Finance is considered with the Liquidity of the firm. It is basically for the short-term.
In this, we invest in our Current assets so as to maintain the Liquidity of the firm. It is related with basic requirement of finance such as purchase of raw material etc.
Long Term- For long term, it is divided into three major parts that are-
- Investment Decision
- Financial Decision
- Dividend Decision
It is related with Long- term Investment Decision. It is irreversible in Nature. In this, the risk amount is high but amount of Profit is also high.
Factors Determining the Investment Decisions
- Investment should be Profitable.
- Payback Period.
- Post Payback Period.
It is related with the Decision regarding Debt and Equity. It is also Known as Capital Structure Decision. In this, we have to maintain balance between both. The Ideal Ratio is 2:1.
Dividend is the part of the Profit which we give to our Shareholders.
The amount of Dividend which we give to our Shareholders are known as Dividend Ratio and the other amount is known as Remaining Ratio.
In Dividend Decision, we have to take the decision that how much part of Profit we have to give our shareholders and how much we have to retained.
In the end, I suggest you a Great Book of Financial Management written by I.M. Pandey .
Right Now, this Book is at Around 40% Discount with Free Delivery.
If you study from this book, then you can become a Great Expertise in Financial Management and you will learn so many financial terms in a very Simple Language which nobody really Knows?????
You can buy This Book from Here.
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