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Financial Management

Published in: Management Subjects
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Financial Management

AnytimeStudies / Surat

year of teaching experience

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Teaches: EVS, History, Mathematics, Science, Biology, Chemistry, Physics, Social Studies, Bank Clerical, Bank PO, IBPS, SSC Exams, IIT JEE Advanced, IIT JEE Mains, NEET

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  1. Financial Management
  2. What is finance„,? Finance is an art and science of managing money. All individuals and organizations raise and spend or invest money. Finance is all about making decisions like: when to buy, what to buy, when to sell. According to Paul. G. Hasings, "Finance is the management of the monetary affairs of the company. It includes determining what has to be paid for raising the money on the best terms available and devoting the available resources to best uses.'
  3. Types of financial needs in business Financial needs of a business grouped in 3 categories: Long term financial needs: Requirement of funds for a period exceeding 3 years. Medium term financial needs: Time constraint fixed at 1 year. Short term financial needs: Deals with financing the current assets.
  4. Financial management This is the business management function that is concerned with managing a business' finances. It deals with procurement of the funds and their effective utilization in the business.
  5. Financial management is used to help make three major decisions: Which assets should we invest in? How will we pay for these assets? What should we do with the earnings generated by the assets? These are called the investment, financing, and dividend decisions.
  6. Differences Between Accounting and Finance Financial accounting involves recording and classifying information. Completion of accounting cycle Compilation of financial statements financial Managerial accounting applies tools to financial information to generate new information. Ratio analysis Breakeven analysis
  7. Financial management involves a number of different areas such as: Stock valuation Bond valuation Asset diversification Property appraisal and valuation Working capital management
  8. Goal for the Hospitality Financial Manager The goal is to maximize the wealth of the owners. For a corporation, this means increasing the stock price to its highest possible level. Maximizing revenues does not necessarily mean maximizing profits.
  9. Goals of finance management 1. 2. Profit maximization Regarded as the objectives of a business enterprise. Consider the uncertainty of future earning stream. Wealth maximization Considers the time value of money. Guides the management in framing consistent strong policy, to reach maximum returns to the equity holders. dividend
  10. 3. Return maximization It safeguard the economic interest of the persons who are directly or indirectly connected with the company.
  11. Scope of financial management 1. 2. Traditional Approach It was popular in the early stage where the financial management is restricted to raising of funds. It involves: Arrangement of funds from financial institutions. 1. Arrangement of fund through financial instruments. 2. Modern approach Provides conceptual and analytical framework for decision making. fi ancial
  12. 1. 2. 3. 3 major functions: The investment decision Concerned with the effective utilization of funds in one activity or others. Capital budgeting techniques are helpful for that. The financing decisions They are related to the collection of capital for investment proposals. Concerned with the determination of capital needs and the source of raising total funds required. The dividend policy of decision It helps the management in shareholders. the declaration and payment o ividend to the
  13. Two main aspects of financial management: Procurement of funds: 1) Funds can be procured from multiple sources. Funds obtained from different sources have different characteristics in terms of risk, cost and control. Funds issued by issue of equity shares are the best from risk point of view. From the cost point of view, equity capital is most expensive source of funds as dividend expectations of shareholders are normally higher than that of prevailing interest rates. The cost of funds should be minimum for a r per balancing of risk and control.
  14. 2) Utilization of funds: Effective utilization of funds is an important aspect of financial management. It avoids the situations where funds are either kept idle or proper uses are not being made. If funds are not used properly, then running business will be too difficult. Many firms have been liquidated because of mismanagement of financial affairs.
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