nature of financial management

Copyright 10. Before uploading and sharing your knowledge on this site, please read the following pages: 1. Profit maximisation is often assumed, incorrectly, to be the main objective of a business. The first task of a financial manager is to estimate short-term and long-term financial requirements of his business. The need, purpose, object and cost involved may be the factors influencing the selection of a suitable source of financing. It will be better if Cash Flow Statement is regularly prepared so that one is able to find out various sources and applications. The estimations should be based on sound financial principles so that neither there are inadequate nor excess funds with the concern. It deals with the issues of long-term financing. Cash management is also an important task of finance manager. The modern approach had a more comprehensive analytical viewpoint with a focus on the procurement of funds and its active and optimum use. (in projects or takeovers or working capital) need to be analysed to ensure that they are beneficial to the investor. The key aspects of financial decision-making relate to investment, financing and dividends: • Investments must be financed in some way – however there are always financing alternatives that can be considered. The ploughing back of profits is the best policy of further financing but it clashes with the interests of shareholders. According to Guthman and Dougal, financial management means, “the activity concerned with the planning, raising, controlling and administering of funds used in the business.” It is concerned with the procurement and utilisation of funds in the proper manner. Financial Management is all about planning, organizing, directing, and controlling the economic pursuits such as acquisition and utilization of capital of the firm. Plagiarism Prevention 5. Operating gearing- If fixed costs are a high proportion of total costs then cash flows will be volatile; so high gearing is not sensible. Privacy Policy 9. Disclaimer 8. This approach is more analytic and less descriptive as the right decisions for a business can be taken only on the base of accounting and statistical data. A balance should be struck even in these principles. The report concludes that in order to stem the rising cost of natural disasters globally, hazard risk management concerns need to be integrated into longer-term national investment policies and development strategies and appropriately reflected in the allocation of financial resources, including medium-term financial planning. We'll assume you're OK with this if you continue. If the concern does not want to tie down assets as securities then public deposits may be a suitable source. The higher this percentage better may be the financial performance. Long-term funds should be employed to finance working capital also, if not wholly then partially. Strategic financial management encompasses all of the above plus continuous evaluating, planning, and adjusting to keep the company focused and … If management does not want to dilute ownership then debentures should be issued in preference to shares. Terms of Service 7. and does not give attention to everyday business operations. Selecting a Source of Finance 4. The other scope of financial management also includes the acquisition of funds, gathering funds for the company from different sources, assessment and evaluation of financial plans and policies, allocation of funds, use of funds to buy fixed and current assets, appropriation of funds, dividing and distribution of profits, and the anticipation of funds along with estimation of financial needs of the company. Management, Financial Management, Features. Management need to ensure that enough funding is available at the right time to meet the needs of the business. With technological improvement, increase competition, and the development of strong corporate, it was important for Management to use the available financial resources in its best possible way. (c) Short- term arrangements with banks etc. The nature and purpose of financial management. The features are: 1. The three critical decisions taken under this approach are. mainly focus on how much debt a firm is planning to use. The fund arrangement is an essential feature of the entire finance function. The uitlisation of profits or surpluses is also an important factor in financial management. Selecting a Pattern of Investment 5. Financial control addresses questions such as: • Are assets being used efficiently? Reasons why profit is not a sufficient objective: For a profit-making company, a better objective is the maximisation of shareholder wealth; this can be measured as total shareholder return (the dividend per share plus capital gain divided by initial share price). Stability of revenue- If operating in a highly dynamic business environment then high gearing is not sensible. The inadequacy of funds will adversely affect the day-to-day working of the concern whereas excess funds may tempt a management to indulge in extravagant spending or speculative activities. Performance of a firm is also affected by the financial decision taken by the Management or finance manager. While spending on various assets, the principles of safety, profitability and liquidity should not be ignored. One may not like to invest on a project which may be risky even though there may be more profits. Financial management may be defined as planning, organising, directing and controlling the financial activities of an organisation. In the case of dividend decision, the finance manager is the who is responsible for the accord that is taken by him or her; regarding the net profit distribution (NPD). If cash is spent on avoidable expenses then such spending may be curtailed. Scope of Financial Management . The concept of ‘Scope of Financial Management’ is explained in detail in this article, which is very helpful for the Commerce students. Security- If unable to offer security then debt will be difficult and expensive to obtain. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further, Download all ACCA course notes, track your progress, option to buy premium content and subscribe to eNewsletters and recaps. This audio is hosted on a service that uses preferencestracking cookies. A decision about the kind of securities to be employed and the proportion in which these should be used is an important decision which influences the short-term and long-term financial planning of an enterprise. Proper Use of Surpluses. We use cookies to help make our website better.

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