WORK SHEET - Financial Management: Q1) Define Financial Management. Discuss Its Characteristics and Objectives

WORK SHEET – Financial Management
Instruction: Write answers of the questions given in this word file & send the completed worksheet when done.
Q1) Define Financial Management. Discuss its characteristics and objectives.

Ans. According to J. L. Massie,
“Financial management is the operational activity of a business that is responsible for obtaining and
effectively utilizing the funds necessary for efficient operation.”
“Financial management is the area of business management devoted to the judicious use of capital & careful selection of
sources of capital in order to enable a spending unit to move in the direction of reaching its goals.”
They mean planning, organizing, directing and controlling the financial activities such as procurement and utilization of
funds of the enterprise. It means applying general management principles to the financial resources of the enterprise.
CHARACTERSTICS OF FINANCIAL MANAGEMENT
 Analytical Thinking:
They under, financial problems are analyzing and consider. Study of the trend of actual figures makes and ratio analysis is
done.
 Continuous Process:
Previously it was required rarely but now the financial manager remains busy throughout the year.
 The basis of Managerial Decisions:
All managerial decisions relating to finance take after considering the report prepared by the finance manager. It is the
base of managerial decisions.
 Maintaining Balance between Risk and Profitability:
Larger the risk in the business larger is the expectation of profits. They maintain the balance between risk and profitability.
 Coordination between Process:
There is always coordination between various processed of the business.
 Centralized Nature:
It is of a centralized nature. Other activities can decentralize but there is only one department for financial management.
OBJECTIVES OF FINANCIAL MANAGEMENT
 Profit maximization
Main aim of any kind of economic activity is earning profit. A business concern is also functioning mainly for the
purpose of earning profit. Profit is the measuring techniques to understand the business efficiency of the concern.
 Wealth maximization
Wealth maximization is also a main objective of financial management. Wealth maximization means to earn maximum
wealth for the shareholders. So, the finance manager tries to give a maximum dividend to the shareholders. He also tries to
increase the market value of the shares. The market value of the shares is directly related to the performance of the
company. Better the performance, higher is the market value of shares and vice-versa. So, the finance manager must try to
maximize shareholder’s value
 Proper estimation of total financial requirements : Proper estimation of total financial requirements is a very important
objective of financial management. The finance manager must estimate the total financial requirements of the company. He
must find out how much finance is required to start and run the company. The finance manager must consider many factors,
such as the type of technology used by company, number of employees employed, scale of operations, legal requirements,
etc.
 Proper mobilisation : Mobilisation (collection) of finance is an important objective of financial management. After
estimating the financial requirements, the finance manager must decide about the sources of finance. He can collect finance
from many sources such as shares, debentures, bank loans, etc. There must be a proper balance between owned finance and
borrowed finance. The company must borrow money at a low rate of interest.
 Proper utilisation of finance : Proper utilisation of finance is an important objective of financial management. The finance
manager must make optimum utilisation of finance. He must use the finance profitable. He must not waste the finance of the
company. He must not invest the company's finance in unprofitable projects. He must not block the company's finance in
inventories. He must have a short credit period.
 Maintaining proper cash flow : Maintaining proper cash flow is a short-term objective of financial management. The
company must have a proper cash flow to pay the day-to-day expenses such as purchase of raw materials, payment of wages
and salaries, rent, electricity bills, etc. If the company has a good cash flow, it can take advantage of many opportunities such
as getting cash discounts on purchases, large-scale purchasing, giving credit to customers, etc. A healthy cash flow improves
the chances of survival and success of the company.
 Survival of company : Survival is the most important objective of financial management. The company must survive in this
competitive business world. The finance manager must be very careful while making financial decisions. One wrong
decision can make the company sick, and it will close down.
 Creating reserves : One of the objectives of financial management is to create reserves. The company must not distribute the
full profit as a dividend to the shareholders. It must keep a part of it profit as reserves. Reserves can be used for future growth
and expansion. It can also be used to face contingencies in the future.
 Increase efficiency : Financial management also tries to increase the efficiency of all the departments of the company. Proper
distribution of finance to all the departments will increase the efficiency of the entire company.
 Reduce cost of capital : Financial management tries to reduce the cost of capital. That is, it tries to borrow money at a low
rate of interest. The finance manager must plan the capital structure in such a way that the cost of capital it minimised.
 Prepare capital structure : Financial management also prepares the capital structure. It decides the ratio between owned
finance and borrowed finance. It brings a proper balance between the different sources of. capital. This balance is necessary
for liquidity, economy, flexibility and stability.
Q2) "Sound financial management is a key to the progress for corporations". Explain.
Ans. Sound financial management involves the provision of funds for the business and then how it is
spent on the different activities of the business. It includes the recording of numerical data to be
analyzed to help assess the financial health and current financial performance of a business. Financial
decisions often impact the quantity of a company's current resources. This is because the need for
working capital often decreases as long-term investments are expanded. Decisions on the structure of
long-term investments are part of any company's financial choices. Such decisions include determining
whether to use bonds or equity to collect long-term funds depending on the relationship between risk
and return.
Importance of Financial Management:

The importance of financial management is vital to an organization. It is a pathway to attain goals and
objectives. The financial manager measures organizational efficiency through proper allocation,
acquisition, and management. It improves operational efficiency by providing a timely supply of fund.
The following noticeable importance is found from financial management:
Provides guidance in financial planning
Assist in acquiring funds from different sources
Helps in investing the appropriate amount of funds
Increase organizational efficiency
Reduces delay production
Cut down financial costs
Reduces cost of fund
Ensures proper use of fund
Helps business firm to take financial decisions
Makes a guideline of earning maximum profits incurring minimum cost
Increase shareholder’s wealth
Control the financial aspects of the business
Provide information through financial reporting
Makes the employees aware of saving funds
Q3) “Finance is the life blood of industry.” Elucidate with the help of suitable
illustrations.
Ans. Finance is a term related to the acquisition of capital for regulating activities of a business. It
focuses on the worth of funds, which fluctuates from time to time. The decision to raise finance through
a particular source is significant for a firm.
The finance is the lifeblood of the industry because each operation of the firm is dependent upon
finance, whether it be a small or long enterprise. The business is initialized through the help of finance
in the form of capital introduction, and every activity, either production or administrative, require
finance for adequate functioning of the business. The finance facilitates business to achieve the objective
for which it established.
For instance, procuring raw material, fixed assets, or meeting miscellaneous expenses the finance plays
an effective role in satisfying all this requirement of the business.
Example:
Company X is willing to introduce a new product. For this, the CEO employs a financial manager to
perform all financial activities. Now the manager has to identify the sources of funds needed for
producing the new product. Then he should determine and evaluate the cost of financing. He will
allocate the fund using financial planning. And after gaining profit he will distribute the profit to the
designated stakeholders.

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WORK SHEET – Financial Management

Q1) Define Financial Management. Discuss its characteristics and objectives.

CHARACTERSTICS OF FINANCIAL MANAGEMENT

OBJECTIVES OF FINANCIAL MANAGEMENT

Importance of Financial Management:

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