Finance management, Relationship of financial management with related disciplines, Pervasive nature of finance function.. ,

Financial management 

Financial management...

Finance means the Money which is required to perform the activities of the business.

Management is Planning, organising,directing& Controlling the activities of business in such a way so that Organization goals achieved.

Financial management is management of finance and all the financial activities of business.In financial management all the management functions like planning, organising directing,controlling are performed for attain organization goals.

financial Planning manager decide how much capital is required for doing business activities and attain organization goals other functions of finance manager are:-

Capital structure 

1) How much capital is required for doing business activities and attain organization goals.

2) From where we can get this capital.

3) What are the available resources of capital.

4) Decision regarding capital structure.

5) How much dividend will be pay and how much be retained for organisation's future growth and development.

6) How much working capital required in future .

Organising -In Organising of financial management finance manager doing following functions:-

1) First & Foremost function of finance manager is  procurement of funds ( arrangement of funds) 

2) He take decision whether he get capital by equity shares, preference shares or debentures all of these have their own negative and positive aspects.

3) After making arrangements of  capital structure of business he invest in various projects and activities of business.

4) Finance manager also maintain the optimum capital Structure, because both over Capitalization & under Capitalization is not good for organization.

Management of cash..

Directing...

In direction function finance manager directs all the financial activities of business.

In this function manager give directions of investment and other financial related activities.How we perform the project so we can get maximum returns?Directions are given by finance manager to the employees.

*How work should be perform so the cost is minimum?

Controlling..

In Controlling finance manager control all the financial activities of business.In this function manager perform these activities:-

1) Evaluation of performance -In this function manager evaluate the actual performance of employees, performance is evaluated by following aspects:-

a) Cost

b) Profits

c) Earning per share.

d) Return on investment etc.

Finance manager evaluate the performance by comparing to the standard performance(standard which are decided by finance manager).If there is any deviations between standard performance and actual performance action is taken and further planning is done for future to attain it.

And employees rewards, promotion, transfer also decide according to their performance.

Relationship of Financial Management with related disciplines.

Financial Management & Financial Accounting - Financial Management and financial accounting both are interrelated but both have different functions these are as follows:-

Financial management is over all management of financial department of organization Whereas

Financial Accounting is to make accounts of each and every every financial activities,it means every activity in which there is cash flows whether inflows or outflows is considered . Financial Management includes planning, organising,directing, controlling of financial activities but financial Accounting inform the total expenditure and total income of organization.In financial management decision related to finance are taken like investment, dividend , growth and development etc but these decisions are taken on the basis of accounts which are made by financial Accounting ( like Trading A/c, Profit &Loss A/c , Balance sheet,Cash Flow) .In financial management manager analysis the performance whether we attain profits or losses these performance are measure on the basis of accounts made by financial Accountant.

Pervasive nature of finance function..

Pervasive means everywhere, finance function is pervasive because it is perform in each and every department.Whether it is government organisations or private organisations finance is compulsory required . Without finance no one can perform run business.Other than business school,colleges, hospitals etc everywhere finance function is performed.Because every organisation wants to know the his total expenses,total income they earn and had to take many decisions for futher. Pervasive nature has been explained by these points:-

★ Finance is a life blood of each every organisation whether it is government or private organisations, finance is compulsory required.

★Without finance no one can perform or run business activities.

★finance is compulsory element which is required to earn finance ,it means finance earn finance ( Paisa paise ko khichta h) if anyone have no finance he is not able to earn finance because every business men have to invest money for earn money.

Financial management,Objectives of Financial Management, difference between profit maximization and value maximization.

 

Financial management 

Financial Management...

Financial management is control the overall management of finance in business.

All the management functions like planning, organising, directing, controlling of finance are performed in financial management.

In Planning manager decide how much capital is required for doing business activities and attain organization goals.

Financial planning is deciding in advance how much capital should be required to run business and attaining goals.financial planning is the process of estimating the capital required and from where we get capital amount.

In Organising finance manager raise the capital from different sources and employ it in various business activities.

In controlling finance manager control all the financial activities of the organization.

Finance manager check is there is under Capitalization or over Capitalization in organization and see whether we attain our financial goals or not within a specified period of time.

Objectives of Financial Management...

Finance manager doing financial management and control over all financial department of organization.By doing financial management his main objective is:-

1) Profit Maximization -As we know every business,company, organization other than Government, main objective is to earn profit,hence the objective of financial management is also profit maximization.However ,it cannot be the sole objective of a company.Some of the demerits of this objective as follows:-

Although every company wants to maximize his profits but it is not a sole objective of company or organization there are other matters are to consider for measure company success,In financial management finance manager not clearly explain this objective .

* The term profit is not clear .It does not clarify what it means.For eg ,It may be short term or long term,it may be total profit or rate of profit etc.

*Profits should also be related to the risk involved.The decisions should be taken after considering the risk in a project also.If company wants to maximize his profits so risk is also maximize because without taken risk no one can get success.

*Profits maximization objective only focus on maximize profits not consider the social responsibility of business,which we have to fullfill in doing business for example an alcohol making company earn more profits but it have negative impact on health.So profit maximize is a narrow concept, merely run behind profits without taken  social responsibility in consideration.

*It does not take into account the time  pattern of returns . Project X may give high profits than project Y but if Project X is taken more time so project Y is preferred.

2) Wealth/Value Maximization -Wealth / Value Maximization means the maximization of the price of a company's share.Investors buy the shares as an investment.It is the duty of the finance manager to see that the shareholders get good returns on the shares.Company's share value is increase by its sales and it's fame in the market.If company earn profit and have Goodwill its share price is rise otherwise company share price market is down.Hence company value is represented by the market price of the company . Sometimes finance manager take decision to keep in mind the short term profit but it may effect it's long term profitability that'why company's share price will come down,So finance manager must focus on maximize his value not only maximize his profits, because maximize his value is more important because by maximize his company value many investors encourage to invest the capital in company so company will get more success.

To achieve wealth/ Value Maximization,the finance manager has to take these important decisions carefully:-

1)  Investment decision - to maximize value finance manager should have to take investment decision carefully.Finance manager invest capital in those projects which is profitable for long run also ,at the time of investment he also consider that working capital also be kept for doing day to day expenses.

2) Finance decisions - In finance decision manager also have knowledge of all the available resources of finance and it's advantages,risk ,cost , control.

3) Dividend Decisions - Finance manager also consider the dividend decision carefully for maximize company value.finance manager decide how much dividend is distributed among shareholders,and how much profits retained for future growth and development because dividend policy also effects the company market price of share .

            

Profit Vs Wealth Maximization

1) Profit Maximization - it's main objective is to earn large amount of profits.

Wealth Maximization - it's main objective is to maximize share value of company.

2) Profit Maximization - It emphasis on short term profits.

Wealth Maximization - It emphasis on long term value of company.

3) Profit Maximization - It does not take into account risk and uncertainty.

Wealth Maximization - It consider risk and uncertainty also.

4) Profit Maximization -It is easy to calculate.

Wealth Maximization - It is not easy to calculate it is dependent upon companies long term profitability and goodwill.