Generally, financial manager’s place is to assess ways that suite the corporation, guided by stakeholder’s view of profit maximization and maximization of wealth. The first job of the finance manager of an enterprise is to estimate short term and long term financial requirements of his business. Objectives of Financial Management: From the discussion we have made so far, it becomes clear that a firm has to take the following three major decisions: (i) Where to invest fund and what amount? Generally, capitalisation rate is expressed in decimal notation, i.e., if the rate of discount is taken as 16%, the same will be recorded as 0.16 (16/100) Capitalisation rate will be higher if the risk is greater and the period is longer. For making right decisions, financial management needs to understand financial environment within which these decisions operate. Identifying the present strengths and weaknesses of the organisation, and the scope for improvement, by conducting the financial analysis. Preparation of detailed cash budgets and/or forecast funds flow statement so that future problems can be foreseen and remedial measures taken in advance. In the past, when it was simply a branch of economics, it was treated as the raising of funds. Various methods of obtaining short, intermediate, and long term financing are also explored, examined, analysed and a decision is taken. The traditional approach to financial management did not allow the financial manager to take any decision regarding the allocation of the firm’s funds although he was required to raise the needed funds from various sources. The profit maximisation criterion does not recognize; the distinction between the returns received in different periods of time and treats them at par which is not true in real-world as the profits (benefits) in earlier years should be valued more highly than the profits (benefits) in the subsequent years. Explain the main goal a financial manager is trying to achieve and the types of decision financial manager makes. Accounting simply provides a way to gauge the financial performance of a business as well as budget for its functions. Besides, the traditional approach was criticised for the following reasons: (a) The traditional approach emphasises on raising and administering funds. There may be various objectives of a firm, but the goal of a firm is to maximise the wealth of the firm’s owners. No doubt, financial management is an integral part of overall management. Content Guidelines 2. That is why it is rightly said that maximisation of wealth is more useful than maximisation of profit as a statement of the objective of most business firms. The principle can be explained with the help of the following Table 1.2. According to E. Solomon’s symbols and methods, the net present worth can be ascertained as under: From the above, it becomes crystal clear that value maximisation decision criterion recognises the time value of money and also tackles the risk which is ascertained by the uncertainty of the expected benefits. Consideration of an appropriate level for drawings by dividends to the owners/ shareholders. A judicious utilisation of earnings is essential for expansion and diversification plans of the enterprise. (d) The traditional approach plays a significant role to the financing problems of non-corporate enterprises. The use of various control techniques by the Finance Manager will help him in evaluating the performance in different areas and take corrective action whenever needed. What does the WMCC schedule represent? It requires the firm’s operation to yield a long-term profit for shareholders as part of the overall goal of maximising the present value of common stock. The investment and the financial policies depend 011 the above decisions. A business organisation seek to achieve their objectives by obtaining funds from various sources and then investing them in different types of assets, such as plant, buildings, machinery, vehicles etc. Financial management is simply concerned with managing an entity’s money. It is quite clear that net present value maximisation is, no doubt, superior than the profit maximisation criterion as an operational objective. But the important difference between them is that alternative-A provides a higher return in earlier years whereas alternative-B provides a higher return in the latter years, i.e., they are not strictly equal. While profit maximisation is the primary goal for any business organisation, social responsibility is also important for them. Under the former, an element in minimising risk is the achieving of liquidity, whereas, under the latter, achieving liquidity requires the maximisation of risks. He has to assess the various cash requirements at different times and then make arrangements for cash needed. Asset management decisions means managing the assets efficiently after their acquisition. Moreover, it is a very precise and unambiguous concept and is, therefore, considered as an appropriate and operationally feasible decision criterion. 8. Study pack, Lagos, VI Publishing Limited. Personal financial management is essential because it helps prepare for your future, saves money, and it gives you control over your money. For a large firm, where shareholders do not have direct say and the firm is managed by the management, an ordinary shareholder can judge the performance by the market price of the firm’s share. In the case of mutually exclusive alternatives, when only one is to be chosen, the alternative with the greatest net present value should be selected. Success of a firm depends on the ability to raise funds, invest in assets and manage wisely. However, the object of the present study is to describe the functions and objectives of financial management in the academic literature in order to serve as a background to its various aspects which are very important. The utilisation of surpluses or earnings is also an important factor in financial management. Disclaimer 8. As an academic discipline, it has undergone fundamental changes in relation to its scope, functions and objectives. The need, purpose, objective, cost involved may be the factors affecting the selection of a suitable source of financing, for instance, if the finances are required for short periods then banks, public deposits and financial institutions may be appropriate, and for long term financial requirements, the share capital and debentures may be useful. 1121 Words 5 Pages. Essay # 1. The following illustration will make the principle clear: Let there be two investment opportunities, A and B, whose profit depend on the state of economy as illustrated in Table 1.1. Financial management will then be able to analyse these financial information’s to predict likely future results and to plan more carefully their proposed course of action. Flexibility can be maintained provided there is careful management of funds and activities. Plagiarism Prevention 5. Many organizations fail in their objectives because of financial mismanagement and … Liquidity-Profitability Approach to Financial Goals: There are two goals which are to be achieved by a financial manager, viz., liquidity and profitability. Financial Goals and Objectives: Essay # 6. This includes the cash as well as non-cash transactions. He should be accountable also for his role. Finance executive has to evaluate each source or method of finance and select the best source keeping in view the various factors. While during detailed planning, estimated requirement is comparatively more realistic, and prepared after going into details more thoroughly. (b) The traditional approach is considered as the episodic financing function since it stresses overemphasis on topics of securities and its markets, incorporation, promotion, merger etc. Finance managers are likely to draw attention on other disciplines also, like accounting and budgeting. Cash management. They instructed their newly hired financial analyst, Chris Guthrie, to enlist an underwriter to help sell $20 million in new 10-year bonds to finance construction. The value maximisation decision criterion involves a comparison of value to cost. Essay # 1. Financing decisions include decisions regarding mix of financing, type of financing employed, dividend policy and method of acquiring funds i.e., getting a short term loan, or a long term lease arrangement, sale of bonds or stock. Financial management refers to the strategic planning, organising, directing, and controlling of financial undertakings in an organisation or an institute. Categories . Module 4 AssignmentAssignment:Answer these essay questions:1. As a result, the entire financing technique was treated as encompassing three interrelated aspects of raising and administering resources from outside: (i) The organisation of capital market in the form of financial institution; (ii) Funds are raised from the capital markets through financial instruments along with the practices and procedural aspects of capital markets; (iii) The legal and accounting relationships between the sources of fund and a firm itself. Capital budgeting refers to the process of planning and managing … Financial Management and the Markets Businesses both large and small have competing priorities. The shortcomings of the traditional approach were primarily due to the fundamental weaknesses other than the treatment and/or emphasis of different aspects. That is, there must be efficient use of resources. Financial Management Fundamental Decisions in Financial Management In financial management, there are three fundamental decisions, which are central to capital budgeting, capital structure and working capital management. Therefore, financial management includes as functions of finance the three major decisions which are: The new approach to financial management may be broadened to include profit-planning function also. Financial management itself is concerned with the planning and controlling of the financial … “The financial management deals with how the corporation obtains the funds and how it uses them.” —Hoagland, “The financial management refers to the application of skills in the manipulation, use and control of funds.” —Mock, Schultz and Schuckectat. The value of an asset is best viewed in terms of the benefits it can produce. There is no doubt that financial management deals with the efficient use of economic resources, i.e., capital funds. Budgets are used for one year, and are prepared only to fulfill the firms’ objectives envisaged in the forecast for that particular year. Liquidity means one’s ability to meet claims and obligations as and when they become due. The main function of financial management is to ensure that the firm must have sufficient funds to meet financial obligations when they are needed and to take advantage of investment opportunities. 9. Account Disable 11. Management is the agents of the owners or shareholders, and financial management acts for achieving the goal of profit maximization in the shareholders’ best interests. Responsibilities of the Financial Management in the Firm: An efficient and sound organisation must be set up for the finance functions as the financial decision of a firm is very important. Besides, money has time value. It comprises of nearly 2500 members of staff as well as 41 fire stations. Terms of Service 7. Requirements: You are the senior financial manager in a large listed company, Carr plc. Financing decision are taken in relation to the overall valuation of the firm. This help is provided to the students so that they can write good assignments on financial management. Similarly, the designation also differs from firm to firm, some are called financial controller, some are called financial manager or vice president for finance or director of finance etc. The task of personal financial management is the key element to getting and keeping money. Shake Shack – Financial Planning Pages: 5 (1435 words) The Importance of Financial Planning Pages: 4 (1032 words) Define financial accounting Finanacial accounts records all the financial reports of Pages: 4 (1031 words) Foundations of Planning in Management Pages: 2 (538 words) Events Planning and Management Pages: 16 (4676 words) For cash needed the primary goal for any business organisation, social responsibility is also an factor! 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