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.

Price Elasticity of Supply..

 Meaning of Price Elasticity of Supply:

Law of supply explains only the direct relationship between quantity supplied of a commodity with its price but the law does not state the degree of change in supply to the change in price.This law indicates only the direction of changes but not the degree.Elasticity of supply explains the degree of change in supply.

"Elasticity of Supply is measure the change in quantity supplied due to change in its prices."

Elasticity means responsiveness if the change in supply is greater than its price,it is said that it have higher elasticity if change in supply is less than its price so it is said that it is less elastic.

Formula of Price Elasticity of Supply =

        Es=%∆quantity supplied 

               %∆change in price.

Types of Elasticity of Supply..

1). Perfectly inelastic supply (Es=0)-When quantity supplied does not change but price is change it is said that supply is perfectly inelastic.

Px(rs). QSx(kg)

10.        100

12.        100 

       

Perfectly inelastic supply 

2) Inelastic supply (Es<1)-When percentage change in quantity supplied is less than the percentage change in price,so supply is called less elastic or less than 1 .for eg if price of commodity rise by 20%,but supply rise by 10%,in that case it shown as ( Es<1) 

Es means elasticity of supply and 1is for price it means price is more than  supply.

Px(rs) QSx(kg)

10.      100

12.       110

Inelastic supply or less elastic supply 

3) Unitary Elastic supply - (Es=1) When percentage change in quantity supplied and percentage change in prices is equal that is called Unitary Elastic supply .For eg - 20%increase in price and 20%increase in supply.

Px(rs). QSx(kg)

10.         100

12.         120

Unitary Elastic supply 

4) Highly Elastic supply (Es>1) When quantity supplied is very much change compare to its price that is called highly elastic supply.For eg 20%rise in prices and 50% rise in quantity supplied,so it is called highly elastic supply or elastic supply.

Px(rs).  QSx(kg)

10.        100

12.        150

Elastic supply or highly elastic supply 

5) Perfectly elastic supply (Es=~)When price of commodities no change or minor change but quantity supplied is very much change (rise or fall ) that situation is known as perfectly elastic supply.It is straight line parallel to x axis.

Px(rs) QSx(kg) 

10.        100

10.         400

Perfectly elastic supply 

                

Coordination 

Coordination..

Coordination is the process of maintain the balance and harmony between the different individuals and departments of an organization in order to attain organization  goals.

Coordination's main aim is to achieve the goals of organization by maintain the discipline and harmony in organization.

Coordination maintain healthy relations between employees ,they work together and fulfill organization goals."Coordination is not a function it is compulsory element which should be compulsory   between employees in performing management functions "

             

Coordination is ..

1) Coordination is the essence of management.

2) Coordination is involved in every function of management and hence should not be regarded as one of its functions.

3) Planning,directing ,organising , staffing and controlling all involve coordination.

Coordination is different from cooperation; Cooperation is voluntary collective action to serve a common purpose,Whereas , coordination is an art of synchronisation of

 efforts so that the common goals is attained.

Without coordination every employee work in their own way ever employee work in their own direction so the organization goals will not be achieved.

Types of Coordination..

1) Internal Coordination..

2) External Coordination..

1) Internal Coordination -When coordination is between different departments, sections,units, employees,branches within the organization is called Internal Coordination.Internal Coordination is again classified in two types:-Vertical & Horizontal 

Coordination.

Vertical Coordination-Coordination between different persons at different levels of management (different designation)hierarchy is known as vertical Coordination.

External Coordination -Coordination between different departments at the same level(same designation) in the organization's chain of command is called external Coordination.

Techniques of maintain Coordination between different activities and departments in the enterprise are these:-

1) By Supervision -Manager must have skill to supervise the work and bring coordination.While supervising, the manager is to see that subordinates synchronizes and coordinate their efforts among themselves and also in relation to other groups.

2) By through the process of Organization - Organization is very powerful device for achieving coordination, Whenever activities are grouped and assigned to subordinates,the idea of coordination is uppermost in the mind of the manager.

When manager make organization he make groups and assign duties in such a way so that coordination is easily maintain.

3) By Personal Contact -Personal contact is another most important technique of maintain Coordination . Coordination is achieved through interpersonal, horizontal relationships of people in the organization.People co-operate better when they understand each other's tasks.

4)By Communication -Communication is also very useful method to achieve coordination.Communication through letters, reports etc through communication employees and managers exchange information, grievances, reports easily so coordination is easily achieve.

External Coordination -A large number of external forces have great impact on success and failure of business.So businessmen pays very much efforts in analysing external forces,after analysing the external forces preventive measures are taken so that the enterprise can effectively cope up with them .The important external forces are interest of customers, investors, employees, competitive situation, technical advances, government policies and coordination can be achieved in many ways:-

1) Shareholders, debenture holders and creditors comprise investors of any company.Management should pursue the policy of promoting good relations with investors so there is continuity of funds availablity.

2) With customers and employees also the problem of coordination is largely that of improving relations with them.Genuine please should be solved customer interest is largely coordinated with the enterprise through product publicity, marketing research in market oriented planning.

3) There must be coordination of the enterprise with other business units,such as suppliers,goods carriers.

Characteristic features of Co-ordinating...

1) Coordination is a continuous process .It is not  come to an end ,there  should be always coordination in managers, employees to attain organization goals.

2) Applies to group effort -Coordination is not apply in individual,it is apply in group effort,when they work together coordination is applied.

3) Common purpose -The ultimate purpose of coordination is to achieve common purpose or to attain organization goals.

4) Universal - Coordination is required in all organisations.At every level Coordination is necessary.Without coordination goals of organization cannot be achieved.

5)Not a function,it is essence of management - Coordination is not a function which have to be performed or complete ,it is a essence it means there is Coordination between managers and employees when they work together to achieve organization goals.they maintain good relations and harmony between them.

How Coordination is different from Co-operation?

1) Coordination is a process of synchronising and integrating the efforts of individuals in an organisation in order to attain organization goals.

Cooperation is a collective will of people in an organisation to contribute to for achieve organization goals.

2) Coordination is rational and logical, Whereas

 cooperation is voluntary and emotional.

3) Cooperation is achieved by the will and attitude of the individuals .

Coordination is achieved by managers skills and efforts.

4) Cooperation is not depend upon coordination.Cooperation can be achieved without coordination but coordination can be achieved through cooperation.

Essentials of Coordination..

a) Direct contact

b) Early stage coordination.

c)Continuity.

d)Well defined objectives.

e) Clear lines of authority.

f) Sound Organization structure.

e) Cooperative behaviour.

f) Effective communication system.

Financial Planning, Capital Structure, financial Leverage, Capitalization, Relevance of the time value of money in financial decisions.

             

Financial Planning 

 Financial Planning...

It refers to estimate the amount of capital and its composition without financial planning company may have to face problem of excess or shortage of funds.So financial planning helps in reducing financial wastage and helps in facilitating control throughout the organisation.So, we can conclude that durable success of a business depends on proper financial planning.

Capital Structure...

To determine the proportion of various sources of funds such as shares, debentures, loans etc create a structure called capital structure .Proper balance must be obtaining during the formation of Capital structure so that it may be able to maximize the wealth of shareholders or owners.

Features of Capital Structure...

1) it should give maximum return.

2) it should have flexibility can be changed accordingly.

3) the debt should be used carefully as it risk to the company.

4) it should have the capacity to meet companies obligations.

Financial Leverage...

A company can raise capital by issuing 3 types of securities.

1) Equity Shares

2) Preference shares

3) Debentures..

Preference shares carries a fixed rate of dividend and debentures carry a fixed rate of interest whereas equity shares are paid dividend out of profits left after payment of interest on debentures and dividend on preference shares.If rate of return on fixed return securities is lower than the rate of earnings then the returns on equity shares will be high .The situation is known as Financial Leverage or Capital Gearing.Thus , Financial Leverage is an arrangement under which fixed return securities (preference shares and debentures) are used to raise cheaper funds to increase the return to equity shareholders.

Factors affecting Capital Structure:

1) Financial Leverage

2) Cash Flow Ability -Debentures and preference shares are to be paid back after their maturity so the expected cash flows must be sufficient to meet the interest liability on debentures.Thus, Debentures are not suitable for those company's which are likely to have irregular cash flows.

3) Control Over the Company -it is entrusted  to the board of directors elected by the shareholders if the board of directors and owners of a company wish to control over the company in their hands ,they may not allow to issue further shares in such a case more funds can be raised by issuing preference shares and debentures.

4) Flexibility -A good capital structure should be flexible and in order to bring flexibility those securities hould be issue which can be paid of after a number of years . Preference shares and Debentures can be paid off whenever the company feels necessary.It provides elasticity in the structure.

5) Floatation Cost -Cost of raising finance should be estimated carefully to decide which of the alternatives is cheapest ,it is also essential to considered the floatation cost involved in the issue of shares debentures such as printing of prospectus and advertisements etc.

6) Market Condition-the conditions prevailing in the capital market influence on the determination of security to be issued for example during depression people do not prefer to take risk and so are not interested in equity shares but during boom period investors are ready to take risk and invest in equity shares.

7). Legal Requirement -the structure of capital of a company is also affected by its legal requirements for example banking companies have been prohibited by the Banking Regulation Act to issue any type of securities except equity shares.

Capitalization -

The Capitalization of a company is the sum total of all long term funds and those reserves  meant for distribution.It comprises share capital, debentures,long -term borrowings and free reserves of the company.

         The amount of capitalization should be related to the earning capacity of the company.There are 3 possible situations of capitalization:

i) Fair or Normal Capitalization - it means the business has employed correct amount of capital and its earnings are same as the average rate of earnings of the company.

ii) Over Capitalization - it means business has employed more capital then required and it's earnings are less than the average rate of earning of the company.

iii). Under Capitalization - it means that the business has employed less capital and its earnings are more than the average rate of earnings of the company .

Q1   Explain the relevance of time value of money in financial decisions?

                

Time value of money..

Time value of money in financial decisions

              The finance manager is required to make decisions on investment, financing and dividend keeping in view the objectives of a company.The investing and financing decisions effect the cash flows in different time periods.These cash inflows and outflows at different time period are not comparable because a rupee received now is not comparable with a rupee to be received in future.However they can be made comparable by introducing the interest factor.This concept is called as time value of money.The cash flows arising at different periods can be made comparable by using any one of two ways:-

1)By compounding - That is calculating the value of money in future.

2) By discounting - That is by calculating the present value of money.

There are three reasons that the money received today is of more worth than rupee received tomorrow:

1) Risk - There is uncertainty about the receipt of money in future.

2) Preference for present consumption -A person always prefers to consume money now than to consume it in future.

3) Investment opportunities - If the money is recieved now than it can be invested somewhere to earn something on it .

Concept of Social Responsibility of Business...

        

Social responsibility of business 

Concept of Social Responsibility...

The concept of social responsibilities is fundamentally and ethical concept. It involves changing motions of human. welfare and emphasizes a concern about the social dimension of business activity that have a direct connection with quality of life is society. The concept provides a way for business to concern itself with these social dimension and pay some attention to its social impacts.

         The word responsibility employees that business organisations have some kind of obligation towards the society in which they function to deal with social problems and contribute more than just economic goods and services.

What Social responsibility of business means?

Social responsibility means obligations of the business persons to pursue those policies that help society in achieving its objectives and values This is an objective to which cannot be stated in as tangible terms as others and yet recent developments in our economy as well as other bring out its crucial importance.

   Conceptual social responsibilities refers to the businessman decision and actions taken for reasons at least partially beyond the firms direct economic or technical interest a somewhat broader view said that there obligation to pursue those policies, to make those decisions or to follow those line of action which are desirable in terms of the objectives and values of our society.

      By social responsibility we mean the intelligent and objectives concern for the welfare of society that restraints individual and corporate behaviour from ultimately destructive activities no matter how immediately profitable and leaves in the direction of positive contributions to human betterment .

Social responsibility refers to the obligations of businessman  to pursue those policies to make those decision or two follow those lines of action which are desirable in terms of the objectives and values of our society.

Why should business be socially responsible?

Why should the business come forward and be responsible towards these interest group these are the following:-

i) Public Image -the activities of business towards the welfare of the society earn goodwill and reputation for the business the earning of business also depend upon the public image of its activities.

2) Government Regulation-to avoid government regulations businessmen should discharge their duties volunteerly for example if any business firm pollutes the environment it will naturally come under strict government regulation which may ultimately force the firm to close down its business instead the business firm

 should engage itself in maintaining a pollution free environment.

3) Survival and Growth -Every business is a part of the society. So for its survival and growth ,support from the society is very much essential. Business utilise the available resources like power ,water, land ,roads etc of the society so it should be the responsibility of every business to spend a part of its profit for the welfare of the society.

4) Employee Satisfaction -Besides getting a good salary and working in a healthy atmosphere employees also expect other facilities like proper accommodation, transportation ,education and training. The employer should try to fulfill all the expectation of the employees because employee  satisfaction is directly related to the productivity and it is also required for the long term prosperity of the organisation for example- if business spend money on training of the employee it will have more efficient people to work and does earn more profit.

5) Consumer Awareness -now a days consumer have become very conscious about their rights. They protest against the supply of inferior and harmful products by forming different groups. This has made it obligatory for the business to protect the interest of the consumer by providing quality products at the most competitive price.

              

Social responsibilities of a business..

a) Consumers: A business enterprise as the responsibility of providing the goods and other services needed by the community at the most reasonable possible prices. It must guard against adulteration ,poor quality, lack of service and courtesy to consumers misleading and dishonest advertising etc. The consumer also need protection against Monopoly and restrictive practices such protection can be provided best if business learns to play it's part with fairness and liberalism.

b) Natural environment -Responsibility for protecting the natural environment includes judicious use of natural resources energy conservation abatement of polluting emissions and waste management.

c) Employees-Responsibility towards employee welfare includes providing fair compensation and benefits and safe work environment ,eliminating discrimination, providing opportunities for personal and professional development and having progressive human resources policies.

d) Government agencies -Responsibilities towards local state and Central Government agencies include fulfilling obligations under regulations and statues of these agencies cooperating in Planning and investigations and coordinating administrative activities with these agencies.

e) Community -Responsibilities to the public or communities where the corporation has operations include providing economic stability ,safeguarding public safety, protecting the environment and aiding in the development of social  and cultural resources of the community through corporate philanthropy.

f) Media -Responsibilities towards the media include being cooperative and truthful about issues that affect public welfare.

Recruitment Overview...

Recruitment 

Recruitment is the process of searching for prospective employees and stimulating and encouraging them to apply for jobs in an organization. The function of recruitment is two fold:-

1) to discover the sources of men power to match job requirements and specifications.

2) to attract n educate number of prospective employees to permit meaningful selection of the required personal.

     Recruitment AIIMS at securing as many qualified applications for job as possible so as to decrease the hiring searching sources for applicants may be internal and external.

                 

                 

Internal Sources.

The internal sources of recruitment include personal already in an organisation. Recruitment from internal sources so as to fill up vacancies by transfer, promotion or re-hiring previous employees.

Advantages of internal sources are:-

1) selection and placement of existing employees are simple and economical.

2) the employer is in a better position to appraise the skill and capability of present employees accurately.

3) it improves employee moral as internal promotion provide opportunities for advancement.

4) it promotes loyalty among the employees.

5) persons already employed can be easily inducted and trained for new jobs.

Internal Sources suffers from certain drawbacks.

a) it places is very heavy responsibility on management of systematic evaluation of the employees past performance.

b) promotion purely based on merit sometimes lead to employee unrest and adversely affect moral.

c) for new jobs the educate number of applicants may not be available so as to ensure fair selection.

d)Past sincerity and ability of the employee do not guarantee that they will be actually competent and loyal in performing the future responsibilities it is therefore

 necessary to evolve some goods and objective system of employees merit evaluation and rating.

    

        

External Sources..

The sources lie outside the organisation and usually include.

I   Person introduces and recommended by present and former employees or trade unions.

II. Employment exchanges and private employment agencies.

III. Open advertisements.

IV.   Educational technical and professional institutions

V.    Contractors and jobers.

VI.    Get hiring of unskilled workers  who   itself comes to organisation.

VII.   Casual applicants.

VIII. Temporary or badly workers.

Encouraging present employees to recommend candidates for employment helps management both in finding suitable candidates and in maintaining Goodwill among employees but this may also encourage family colleagues and inner circle of close friends in general external recruitment through open advertisement provides a wide scope for selection from among large number of candidates with requisite skill and competents. It proves to be most useful for filling up managerial positions requiring technical and professional qualifications.