To achieve this objective, a thorough study is conducted about ‘flow of funds’ i.e., statement of funds requirement indicating the amount of fund needed and at what time. Essays, Research Papers and Articles on Business Management, Essay on Financial Management: Objectives, Scope and Functions, Essay on Financial Management: Top 5 Essays | Branches | Management, Shareholder Value Analysis (SVA) | Firm | Financial Management. For feasibility study, only broad estimates are sufficient and are generally obtained from the past experience of the similar works by interpolating the present trends and the condition of the proposed project in comparison to the one whose figures are being adopted. In short, according to the modern approach, financial management deals with the solution of the above three major problems relating to the financial operations, viz., investment, financing and dividend decisions. This is the most important decision. Many organizations fail in their objectives because of financial mismanagement and … For the reasons shown above, value maximisation has replaced profit maximisation as an operational criterion for management decisions. Financial Management and the Markets Businesses both large and small have competing priorities. The idle cash with the enterprise will mean that it is not properly utilized. Essay # 1. Success of a firm depends on the ability to raise funds, invest in assets and manage wisely. The Value Maximisation or Net Present Worth Maximisation — which is universally accepted as an appropriate and operationally feasible criterion in order to choose among the alternative courses of action for financial management — is to maximise the value of the firm over a long run. Essays / Business / Financial Management 2; Financial Management . But, during and after mid-1950s, an efficient and effective utilisation of a firm’s resources necessitated, as there were a number of economic and environmental factors, like the increasing pace of industrialization, technological inventions and innovations, intense competition, government intervention, population growth etc. Enugu, El ‘Demak Publishers. The appraisals are needed in respect of possible take overs and mergers, analysis of capital projects, or alternative methods of funding. He must have flexibil­ity to adopt to the changing external environment for the survival of his firm. Profit maximisation ignores timings. After reading this essay you will learn about Financial Management:- 1. In order to understand the environment in which a finance manager is required to take decision, a sketch indicating business system is given hereunder: The Financial Management’s main role is therefore to create profit on the capital invested (fixed as well as working capital). While during detailed plan­ning, estimated requirement is comparatively more realistic, and prepared after going into details more thoroughly. In making financial decisions, it is important to set out clear objectives. These should, therefore, be evaluated in relation to expected return and risk. An action that has a discounted value, reflecting both time and risk, that exceeds its cost can be said to create value. No doubt the latter project may result in a greater total profit if the firm could not immediately re-invest its profits when the same was received from the 3-year project. For this purpose, the firm must develop controls over flows of funds which allows sufficient flexibility to respond to change in the operating environment. (Pg.19-54) Remi A. Ensuring that assets are controlled and used in an efficient manner. The estimations should be based on sound financial principles so that funds available with the firm are neither inadequate nor excess. 7. Financial management is concerned with the acquisition (investment), financing (arranging funds), and management of assets with some overall goal in mind. The value of an asset is best viewed in terms of the benefits it can produce. Financial management refers to the strategic planning, organising, directing, and controlling of financial undertakings in an organisation or an institute. Subjects: Business, Financial Management. Treasure, Controller etc.) Functions of Financial Management: Essay on the Introduction to Financial Management, Essay on the Definition of Financial Management, Essay on the Scope of Financial Management, Essay on the Role of Financial Management in a Business, Essay on the Financial Goals and Objectives, Essay on the Functions of Financial Management. Functions. (b) Distributing profit as rewards to owners/shareholders. Essay # 3. 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 shortcomings of the traditional approach were primarily due to the fundamental weaknesses other than the treatment and/or emphasis of different aspects. 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. Report a Violation 11. Copyright 9. Table 1.1: Showing the uncertainty about expected profits: From the table 1.1 shown above, it is quite clear that the total returns related to two alternatives become equal to Rs. The traditional approach evolved in the 1930s and 1940s which dominated the academic thinking during 1940s and early 1950s. Today financial managers occupy key positions in top management areas and play dynamic role in solving complex management problems. The same is due to the fact that there is a time value of money. Thus we can say that, “the improvement of shareholders value is the one mission that continually guides all corporate decisions and actions” or “the goal of a firm is maximizing the shareholders’ value”. Notably, the manager has numerous goal and objective in cooperation. Arranging the funds when required, in the form needed in the most economical way. Chuke N. (2001). (i) Profit-Risk Approach to Financial Goals and. Moreover, it is a very precise and unambiguous concept and is, therefore, considered as an appropriate and operationally feasible decision criterion. Each and every decision related to finance/economy must be optimal. In order to enable financial managers to perform above functions satisfactorily, he must have good knowledge of accounting, economics, mathematics, statistics, law especially taxa­tion, financial market etc. But the same is very narrow in case of alternative A. Role in a Business 5. These finances are procured at minimum cost in order to maximize the profitability. Approaches of Financial Management: The scope and functions of financial management are divided into two following broad categories, viz. Financial Management essay; Toddlerhood major changes in (cognitive, physical, social, emotional, moral and spiritual) December 7, 2020. The utilisation of surpluses or earnings is also an important factor in financial management. Therefore, the primary finance function is to take proper decision about the expenditure and the demand for capital for those expenditures, i.e., the proper and efficient use of allocation of funds. The overall objectives of an organization cannot be achieved in the absence of financial management. It improves operational efficiency by providing a timely supply of fund. The traditional approach evolved its utility during the 1940s and mid-1950s. A judicious utilisation of earnings is essential for expansion and diversification plans of the enterprise. At the same time, such department may be headed either by a committee or an official who will consider the financial policy matter and other routine activities may be assigned to others. It should be remembered that a clear understanding of the objectives which are sought to be attained is necessary in order to make wise decisions. Chris has entered into […] Cash management. Liquidity-Profitability Approach to Financial Goals: There are two goals which are to be achieved by a financial manager, viz., liquidity and profitability. ICAEW (2011) defines financial management as a responsibility for core process activities - accounting, financial information processing, tax management, financial controls and treasury, … The above questions actually cover the major financial problems of a firm. Before uploading and sharing your knowledge on this site, please read the following pages: 1. He will prepare a financial plan for present as well as future for this purpose. Introduction to Financial Management 2. Table 1.2: Showing the timing of anticipated profit: From the Table 1.2 shown above, it is clear that the total profits shown by the alternatives A and B are equal. Financial management is a decision making process that entails the use of theories, concepts and tools to make better financial decisions. Basic Principles of Financial Management: A First Course. Investment decisions also include the decisions about mergers and acquisition of another company. Cash may be required to (i) make payments to creditors (ii) for purchase of materials (iii) to meet wage bill (iv) to meet everyday expenses. Considerable attention is paid to determine the appropriate required rate of return on the investment. Importance Financial Management: The importance of financial management is vital to an organization. Terms of Service 7. Challenging Behavior framed around Universal Designs for Learning Principles. But the same has to be transformed to provide the necessary principles and guidelines to the financial managers since the profit maximisation concept does not recognise the real-world problems that we feel when we want to take actual decisions about the efficient use of capital funds. Survival and development of a firm depend on it. 2177 Words9 Pages. So as to enable to perform the role of financial management, financial managers must be given proper authority, autonomy, freedom of actions, supporting staff, system for providing necessary information. The operational features of wealth maximisation satisfy all the three requirements of a suitable operational objective of financial courses of action. Consumer demands, regulatory concerns, shareholder interests, and employee relationships all require attention from the business perspective. Practically, the following reasons advocate why the finance functions should be handed over to the top management: (i) It is the pivot for a firm. The financial manager measures organizational efficiency through proper allocation, acquisition, and management. An effective financial management plays a dynamic role in a modern company’s develop­ment. In short, the traditional view is the outsider-looking-in approach. 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. Introduction to Financial Management: Essay # 2. Besides, under perfect competition, where all prices accurately reflect true values and consumers are well informed, profit maximisation behaviour by firms leads to an efficient allocation of resources and maximum social welfare. Under this method, the net present value or wealth of a course of action is maximised. Social responsi­bility includes service to the people, protecting the consumer, paying fare wages to the employ­ees, upliftment of the weaker sections, welfare facilities like medical education, environment improvement programmes etc. A balance should be struck even in these principles for the purpose of optimum returns on investment. Content Guidelines 2. Profit can be maximised either by increasing output for a given set of scarce input or by reducing the cost of production for a given output. Since the capital is a scarce item, it follows that the profit maximisation should serve as the primary need for the decision taken by the financial managers of private firms which, in practice, it follows. While taking financing decisions, the influence of inflammation on financial markets and on the cost of funds to the firm is also considered. Essay, Financial Management, Essay on Financial Management. 1121 Words 5 Pages. Following are the basic financial objectives: (b) Maximisation of shareholders’ owners’ wealth. Funds requirement is assessed for different purposes, namely for feasibility study of a project, detailed planning of a project, and for operation and expansion of the business. The finance executive must take into consideration the merits and demerits of the alternative scheme of utilizing the funds generated from the enterprise’s own earnings. Definition of Financial Management: Essay # 3. Profit maximisation is widely preferred, but, in fact, the concept has been questioned and criticised on the following grounds: Practically, profit maximisation, as an operational criterion, becomes unsuitable for the problems of uncertainty in relation to the investment and financing decisions since it considers only the size of benefits and gives no weight to the degree of uncertainty of the future benefits. Personal financial management is essential because it helps prepare for your future, saves money, and it gives you control over your money. Funds which are flowing in and out should always be monitored in order to assure that they are safeguarded and properly utilized. Here is an essay on a ‘Financial System’ for class 11 and 12. A certain amount out of the total profit may be kept as reserve voluntarily, a portion of surplus may be distributed among the ordinary and preference shareholders, yet another portion may be reinvested. As an academic discipline, it has undergone fundamen­tal changes in relation to its scope, functions and objectives. (ii) In what form should it hold its assets? The main objectives of financial management are to arrange the sufficient funds for meeting short term long term requirements of the enterprise. The finance required for procuring fixed assets as well as the working capital needs will have to be ascertained. Thus in addition to the job of acquisition, financing and managing the assets, the financial manager is supposed to contribute to the fortunes of the firm and to the optimal growth of the economy as a whole. Essay # 2. For making right decisions, financial management needs to understand financial envi­ronment within which these decisions operate. That is, there must be efficient use of resources. Thus the overall survival of the firm is effected by it financial operations. Flexibility can be maintained provided there is careful management of funds and activities. Invest­ment decisions begin with a determination of the total amount of assets required by the firm and to determine the money value of the same. It properly points out that the profit factor should be considered from a long-term point of view. An optimal financing mix is one in which market price per share could be maximised. Today external factors, like competition, technological change, economic uncertainty, infla­tion problem etc., create financial managers problem more complicated. Securing finance (both long and short-time). While profit maximisation is the primary goal for any business organisation, social respon­sibility is also important for them. Do you believe this is always accurate? Order custom writing paper now! The benefits of an investment or financing decision can be measured in terms of the stream of future expected case flows generated by the decisions, rather than the accounting profit which is the basis for the measurement of benefits in the case of profit maximisation criterion. Financial Management Introduction ============ Every organization, irrespective of its size or ownership pattern, has to manage its finances. A decision regarding various sources of funds should be linked with the cost of raising funds. Budgets are used for one year, and are prepared only to fulfill the firms’ objectives envisaged in the forecast for that particular year. The finance function is concerned with the process of acquiring an efficient utilization of funds of a business system, in order to maximize the value of the enterprise. i.e., the Investment decisions; (ii) Where to raise funds and what amount? The cash management should be such that neither there is shortage of it and nor it is idle. Copyright 10. No doubt, financial management is an integral part of overall management. (c) Required rate of return on investment. According to Modern Micro economic theory, profit maximi­sation is nothing but a criterion for economic efficiency as profits provide a yardstick by which economic performances can be judged under condition of perfect competition. Essay # 4. 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. (c) Since the traditional approach stresses more emphasis on the long-term problem, it ignores the importance of working capital management. In other words, necessary adjustment must be made in the cash flow pattern in order to incorporate the risk and also to make an allowance for differences in the timing of benefits. 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