Fin 109

FIN 109 – SPECIAL TOPICS IN FINANCIAL MANAGEMENT
FINANCIAL MANAGEMENT: MEANING, SCOPE, OBJECTIVES AND FUNCTIONS
FINANCE – is described as the management of money and include such as investing, borrowing, lending, budgeting and
saving.
FINANCIAL MANAGEMENT – means strategic planning, organizing, directing and controlling of financial
undertakings in an organization or in a company.
SCOPE OF FINANCIAL MANAGEMENT
1. INVESTMENT DECISION – it include investment in a fixed asset (capital budgeting) and in a current asset
(working capital decision).
2. FINANCING DECISION – they relate to the raising of finances from various resources which will depend upon
the decision on type of sources, period of financing, cost of financing and the returns.
3. DIVIDEND DECISION – the finance manager has to take decision with regards to the net profit distribution.
Net profits are generally divided into two:
a. Dividends for stockholders/shareholders – Dividend and the rate of it has to be decided.
b. Retained Profits – Amount of retained profits has to be finalized which will depend upon expansion and
diversification plans of the enterprise.
OBJECTIVES OF FINANCIAL MANAGEMENT
The financial management is generally concerned with procurement, allocation and control of financial resources of a
concern. The objectives can be:
1. To ensure regular and adequate supply of funds to the concern.

2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of
the share, expectations of the shareholders.
3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible
way at least cost.
4. To ensure safety on investment. (i.e., funds should be invested in safe ventures so that adequate rate of return can
be achieved.)
5. To plan a sound capital structure. There should be sound and fair composition of capital so that a balance is
maintained between debt and equity capital.
Functions of Financial Management
1. Estimation of capital requirements: A finance manager has to make estimation with regards to capital
requirements of the company. This will depend upon expected costs and profits and future programmes and policies
of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise.
2. Determination of capital composition: Once the estimation have been made, the capital structure have to be
decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of
equity capital a company is possessing and additional funds which have to be raised from outside parties.
3. Choice of sources of funds: For additional funds to be procured, a company has many choices like:
a. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds.
Choice of factor will depend on relative merits and demerits of each source and period of financing.
4. Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is
safety on investment and regular returns is possible.
5. Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two
ways:
a. Dividend declaration – It includes identifying the rate of dividends and other benefits like bonus.
b. Retained profits – The volume has to be decided which will depend upon expansional, innovational,
diversification plans of the company.
6. Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required
for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors,
meeting current liabilities, maintainance of enough stock, purchase of raw materials, etc.
7. Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to
exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting,
cost and profit control, etc.

Fin 109

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FIN 109 – SPECIAL TOPICS IN FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT: MEANING, SCOPE, OBJECTIVES AND FUNCTIONS

SCOPE OF FINANCIAL MANAGEMENT

OBJECTIVES OF FINANCIAL MANAGEMENT

1. To ensure regular and adequate supply of funds to the concern.

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