1

PROJECT ON
Study Of Scope and Objectives of Financial Management
SUBMITTED BY
KIRAN TUKARAM SABNE
(M.COM PART -2 ACCOUNTANCY)
(SEMESTER III ROLL NO. 420)
SUBMITTED TO
UNIVERSITY OF MUMBAI
PROJECT GUIDE
PROF.SEEMA CHAUDHARY
JVMS MOHANLAL RAICHAND MEHTA DEGREE
COLLEGE OF COMMERCE
PLOT NO- 19 SECTOR -19AIROLI, NAVI MUMBAI 400708
ACADEMIC YEAR 2015-16

DECLARATION
I KIRAN TUKARAM SABNE Student Of JVMS MEHTA COLLEGE Presently Studying In
M.Com Part-2 (Advanced Financial Management) Semester III Roll No. 420 Hereby
Declare That I Have Completed This Project On Study Of Scope and Objectives of

Financial Management In The Academic Year 2015-16. The Information Incorporated In

This Project Is True And Original To The Best Of Our Knowledge.

Date

:-

Place

:-

KIRAN SABNE
ROLL NO. 420

ACKNOWLEDGEMENT
This Project Is A Result Of Dedicated Effort. It Gives Us Immense Pleasure To Prepare
This Project Report On Study of Scope and Objectives of Financial Management
We Would Like To Thank Our Project Guide, PROF.SEEMA CHAUDHARY For
Consultative Help And Constructive Suggestion On The Matter In This Project. We Would Like
To Thank Our Parents And Our Colleagues Who Have Helped Us In Making This Project A
Successful One.

INDEX

SR.NO.

TOPIC

PAGE NO.

1.

Introduction

2.

Meaning of Financial Management

3.

Definitions of Financial Management

4.

5.

Scope of Financial Managemen

Objectives of Financial Management

13

6.

Importance of Financial Management

16

7.

Advantages & Disadvantages of Financial Management

21

8.

Role of financial management24

24

9.

Functions of Financial Management

26

10.

Reference

28

11.

Conclusion

29

Introduction

Financial management refers to the efficient and effective management of money (funds) in
such a manner as to accomplish the objectives of the organization. It is the specialized
function directly associated with the top management. The significance of this function is not
seen in the 'Line' but also in the capacity of 'Staff' in overall of a company. It has been
defined differently by different experts in the field.
The term typically applies to an organization or company's financial strategy, while personal
finance or financial life management refers to an individual's management strategy. It
includes how to raise the capital and how to allocate capital, i.e. capital budgeting. Not only
for long term budgeting, but also how to allocate the short term resources like current
liabilities. It also deals with the dividend policies of the share holders.

Meaning of Financial Management

Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying
general management principles to financial resources of the enterprise. Financial
management may be defined as planning, organising, directing and controlling the financial
activities of an organisation. According to Guthman and Dougal, financial management
means, the activity concerned with the planning, raising, controlling and administering of
funds used in the business. It is concerned with the procurement and utilisation of funds in
the proper manner.
Financial activities deal with not only the procurement and utilisation of funds but also with
the assessing of needs for funds, raising required finance, capital budgeting, distribution of
surplus, financial controls, etc.
Ezra Solomon has described the nature of financial management as follows: Financial
management is properly viewed as an integral part of overall management rather than as a
staff specially concerned with funds raising operations.
In this broader view, the central issue of financial policy is the wise use of funds and the
central process involved is a rational matching of the advantage of potential uses against the

cost of alternative potential sources so as to achieve the broad financial goals which an
enterprise sets for itself.In addition to raising funds, financial management is directly
concerned with production, marketing and other functions within an enterprise whenever
decisions are made about the acquisition or distribution of funds.

Definitions of Financial Management

One needs money to make money. Finance is the life-blood of business and there
must be a continuous flow of funds in and out of a business enterprise. Money
makes the wheels of business run smoothly. Sound plans, efficient production
system and excellent marketing network are all hampered in the absence of an
adequate and timely supply of funds.
Sound financial management is as important in business as production and
marketing. A business firm requires finance to commence its operations, to
continue operations and for expansion or growth. Finance is, therefore, an
important operative function of business.
A large business firm has to raise funds from several sources and has to utilise
those funds in alternative investment opportunities. In order to ensure the most
judicious utilisation of funds and to provide a reasonable rate of return on the
investment, sound financial policies and programmes are required. Unwise
financing can drive a business into bankruptcy just as easily as a poor product,
inept marketing or high production costs.
On the other hand, adequate and economical financing can provide the firm a
differential advantage in the market place. The success of a business enterprise is
largely determined by the way its capital funds are raised, utilised and disbursed. In
the modern money-using economy, the importance of finance has increased further
due to increasing scale of operations and capital intensive techniques of production
and distribution.
In fact, finance is the bright thread running through all business activity. It
influences and limits the activities of marketing, production, purchasing and
personnel management. The success of a business is measured largely in financial
terms. The efficient organisation and administration of the finance function is thus
vital to the successful functioning of every business enterprise.

Financial Management is the Operational Activity of a business that is responsible for

obtaining and effectively utilizing the funds necessary for efficient operation. by Joseph
Massie
Business finance deals primarily with rising administering and disbursing funds by
privately owned business units operating in non-financial fields of industry. by Kuldeep
Roy
Financial Management is an area of financial decision making, harmonizing individual
motives and enterprise goals. By Weston and Brigham
Financial management is the area of business management devoted to a judicious use of
capital and a careful selection of sources of capital in order to enable a business firm to move
in the direction of reaching its goals. by J.F.Bradlery
Financial management is the application of the planning and control function to the
finance function. by K.D. Willson
Financial management may be defined as that area or set of administrative function in an
organization which relate with arrangement of cash and credit so that organization may have
the means to carry out its objective as satisfactorily as possible . - by Howard & Opton.
Business finance can be broadly defined as the activity concerned with planning, raising,
controlling and administering of funds and in the business. by H.G Gathman & H.E
Dougall

Financial management is a body of business concerned with the efficient and effective use of
either equity capital, borrowed cash or any other business funds as well as taking the right
decision for profit maximization and value addition of an entity.- Kepher Petra; Kisii
University.
Finance management not only for the business, but also for every expenses. Like its for the
home base expenses or the government expenses. The government also need to manage the
finance for the develop of the counter and the household also need to manage their expenses
properly - By Vinod Verma

Scope of Financial Management

1.

Estimating Financial Requirements: -

The first task of financial manager is to estimate short term and longterm financial requirements of his business. For this purpose, he will prepare a
financial plan for present as well as for future. The amount required for purchasing
fixed assets as well as for working capital will have to be ascertained.
2.

Deciding Capital Structure: -

The capital structure refers to the kind and proportion of different

securities for raising funds. After deciding about the quantum of funds required, it
should be decided which type of securities should be raised. It may be wise to
finance fixed assets through long-term debts and current assets through short-term
debts.
3.

Selecting a Source of Finance: -

After preparing capital structure, an appropriate source of finance is

selected. Various sources from which finance may be raised include: share capital,
debentures, financial institutions, commercial banks, public deposits etc. If finance
is needed for short period then banks, public deposits and financial institutions may
be appropriate. On the other hand, if long-term finance is required then, share
capital, and debentures may be useful.
4.

Selecting a pattern of Investment: -

When funds have been procured then a decision about investment

pattern is to be taken. The selection of an investment pattern is related to the use of
funds. A decision will have to be taken as to which asset is to be purchased. The
funds will have to be spent first on fixed assets and then an appropriate portion will
be retained for working capital. The decision-making techniques such as capital
budgeting, opportunity cost analysis etc. may be applied in making decisions about
capital expenditures.
5.

Proper cash Management: -

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Cash management is an important task of finance manager. He has to

assess various cash needs at different times and then make arrangements for
arranging cash. The cash management should be such that neither there is a
shortage of it and nor it is idle. Any shortage of cash will damage the credit
worthiness of the enterprise. The idle cash with the business will mean that it is not
properly used. Cash flow statements are used to find out various sources and
application of cash.
6.

Implementing Financial Controls:-

An efficient system of financial management necessitates the use of

various control devises. Financial control devises generally used are budgetary
control, break even analysis; cost control, ratio analysis etc. The use of various
techniques by the finance manager will help him in evaluating the performance in
various areas and take corrective measures whenever needed.
7.

Proper use of Surplus: -

The utilization of profit or surplus is also an important factor in

financial management. A judicious use of surpluses is essential for expansion and
diversification plan and also in protecting the interest of shareholders. The finance
manager should consider the following factors before declaring the dividend;
a.

Trend of earnings of the enterprise

b.

Expected earnings in future.

c.

Market value of shares.

d.

Shareholders interest.

e.

Needs of fund for expansion etc.

Some of the major scope of financial management are as follows: 1. Investment Decision 2.
Financing Decision 3. Dividend Decision 4. Working Capital Decision.

8 Investment Decision:

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The investment decision involves the evaluation of risk, measurement of cost of capital and
estimation of expected benefits from a project. Capital budgeting and liquidity are the two
major components of investment decision. Capital budgeting is concerned with the allocation
of capital and commitment of funds in permanent assets which would yield earnings in
future.
Capital budgeting also involves decisions with respect to replacement and renovation of old
assets. The finance manager must maintain an appropriate balance between fixed and current
assets in order to maximise profitability and to maintain desired liquidity in the firm.
Capital budgeting is a very important decision as it affects the long-term success and growth
of a firm. At the same time it is a very difficult decision because it involves the estimation of
costs and benefits which are uncertain and unknown.
9. Financing Decision:

While the investment decision involves decision with respect to composition or mix of
assets, financing decision is concerned with the financing mix or financial structure of the
firm. The raising of funds requires decisions regarding the methods and sources of finance,
relative proportion and choice between alternative sources, time of floatation of securities,
etc. In order to meet its investment needs, a firm can raise funds from various sources.
The finance manager must develop the best finance mix or optimum capital structure for the
enterprise so as to maximise the long- term market price of the companys shares. A proper
balance between debt and equity is required so that the return to equity shareholders is high
and their risk is low.
Use of debt or financial leverage effects both the return and risk to the equity shareholders.
The market value per share is maximised when risk and return are properly matched. The
finance department has also to decide the appropriate time to raise the funds and the method
of issuing securities.

10. Dividend Decision:

In order to achieve the wealth maximisation objective, an appropriate dividend policy must
be developed. One aspect of dividend policy is to decide whether to distribute all the profits
in the form of dividends or to distribute a part of the profits and retain the balance. While

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deciding the optimum dividend payout ratio (proportion of net profits to be paid out to
shareholders).
The finance manager should consider the investment opportunities available to the firm,
plans for expansion and growth, etc. Decisions must also be made with respect to dividend
stability, form of dividends, i.e., cash dividends or stock dividends, etc.

11. Working Capital Decision:

Working capital decision is related to the investment in current assets and current liabilities.
Current assets include cash, receivables, inventory, short-term securities, etc. Current
liabilities consist of creditors, bills payable, outstanding expenses, bank overdraft, etc.
Current assets are those assets which are convertible into a cash within a year. Similarly,
current liabilities are those liabilities, which are likely to mature for payment within an
accounting year.

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Objectives of Financial Management

The financial management is generally concerned with procurement, allocation and control
of financial resources of a concern. The objectives can beTo ensure regular and adequate supply of funds to the concern.

To ensure adequate returns to the shareholders which will depend upon the earning
capacity, market price of the share, expectations of the shareholders.

To ensure optimum funds utilization. Once the funds are procured, they should be
utilized in maximum possible way at least cost.

To ensure safety on investment, i.e, funds should be invested in safe ventures so that
adequate rate of return can be achieved.

To plan a sound capital structure-There should be sound and fair composition of

capital so that a balance is maintained between debt and equity capital.

The main objectives of financial management are:-

1Profit maximization :
The main objective of financial management is profit maximization. The finance manager
tries to earn maximum profits for the company in the short-term and the long-term. He
cannot guarantee profits in the long term because of business uncertainties. However, a
company can earn maximum profits even in the long-term, if:The Finance manager takes proper financial decisions.
He uses the finance of the company properly.

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2Wealth maximization :
Wealth maximization (shareholders' value maximization) is also a main objective of financial
management. Wealth maximization means to earn maximum wealth for the shareholders. So,
the finance manager tries to give a maximum dividend to the shareholders. He also tries to
increase the market value of the shares. The market value of the shares is directly related to
the performance of the company. Better the performance, higher is the market value of shares
and vice-versa. So, the finance manager must try to maximise shareholder's value.
3Proper estimation of total financial requirements :
Proper estimation of total financial requirements is a very important objective of financial
management. The finance manager must estimate the total financial requirements of the
company. He must find out how much finance is required to start and run the company. He
must find out the fixed capital and working capital requirements of the company. His
estimation must be correct. If not, there will be shortage or surplus of finance. Estimating the
financial requirements is a very difficult job. The finance manager must consider many
factors, such as the type of technology used by company, number of employees employed,
scale of operations, legal requirements, etc.
4Proper mobilisation : Mobilisation (collection) of finance is an important objective of
financial management. After estimating the financial requirements, the finance manager must
decide about the sources of finance. He can collect finance from many sources such as
shares, debentures, bank loans, etc. There must be a proper balance between owned finance
and borrowed finance. The company must borrow money at a low rate of interest.
5Proper utilisation of finance : Proper utilisation of finance is an important objective of
financial management. The finance manager must make optimum utilisation of finance. He
must use the finance profitable. He must not waste the finance of the company. He must not
invest the company's finance in unprofitable projects. He must not block the company's
finance in inventories. He must have a short credit period.
6Maintaining proper cash flow : Maintaining proper cash flow is a short-term objective of
financial management. The company must have a proper cash flow to pay the day-to-day
expenses such as purchase of raw materials, payment of wages and salaries, rent, electricity
bills, etc. If the company has a good cash flow, it can take advantage of many opportunities
such as getting cash discounts on purchases, large-scale purchasing, giving credit to
customers, etc. A healthy cash flow improves the chances of survival and success of the
company.
7Survival of company : Survival is the most important objective of financial management.
The company must survive in this competitive business world. The finance manager must be

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very careful while making financial decisions. One wrong decision can make the company
sick, and it will close down.
8Proper coordination : Financial management must try to have proper coordination between
the finance department and other departments of the company.
9Create goodwill : Financial management must try to create goodwill for the company. It
must improve the image and reputation of the company. Goodwill helps the company to
survive in the short-term and succeed in the long-term. It also helps the company during bad
times.
10Increase efficiency : Financial management also tries to increase the efficiency of all the
departments of the company. Proper distribution of finance to all the departments will
increase the efficiency of the entire company.
11Financial discipline : Financial management also tries to create a financial discipline.
Financial discipline means:To invest finance only in productive areas. This will bring high returns (profits) to the
company.
To avoid wastage and misuse of finance.

12Reduce cost of capital : Financial management tries to reduce the cost of capital. That is,
it tries to borrow money at a low rate of interest. The finance manager must plan the capital
structure in such a way that the cost of capital it minimised.
13Reduce operating risks : Financial management also tries to reduce the operating risks.
There are many risks and uncertainties in a business. The finance manager must take steps to
reduce these risks. He must avoid high-risk projects. He must also take proper insurance.
14Prepare capital structure : Financial management also prepares the capital structure. It
decides the ratio between owned finance and borrowed finance. It brings a proper balance
between the different sources of. capital. This balance is necessary for liquidity, economy,
flexibility and stability.
15Creating reserves : One of the objectives of financial management is to create reserves.
The company must not distribute the full profit as a dividend to the shareholders. It must
keep a part of it profit as reserves. Reserves can be used for future growth and expansion. It
can also be used to face contingencies in the future.

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Importance of Financial Management

Financial management is very important or significant because it is related to funds
of company. Financial management guides to finance manager to make optimum
position of funds. We can clearify its value in following 5 points.

1.
With study of financial management, we can protect our business from pre-carious
mis-management of money. Suppose, you are small businessman and you took
short-term loan and financed fixed assets with this loan. It means, you have to pay
loan within one year but fixed assets can not be sold within one year. In the end of
year, you have not enough money to pay this long term debt and this will create
risk to your businesss existence. You will become insolvent. This is the simple
example of mismanagement of money in your small business, but we do large scale
company business, importance of financial management is greater than small
business. We should invest in fixed asset if there is any other source of funds. In
financial management, we make optimum capital structure and we should buy all
fixed assets out of share capital money because, it will reduce the risk of
repayment.

2.
In financial management, we deeply study our balance sheet and all sensitive facts
should be watched which can endanger our business into loss. For example, a
closing balance sheet shows you, you have to pay large amount of debt in next year
and you have blocked all the money by purchasing goods or inventory. Financial
management teaches you that this is not good outflow of funds which is invested in
inventory. Blocked inventory never generate earning and your balance sheets
stock value gives you idea that your company is not capable to sell products
quickly. Financial manager can elucidate you that overstocking will increase
godown expenses one side and it is also risky due to the danger of damage the

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stock. Moreover, it increases risk of liquidity. Inventory management is the part of

financial management and merely using inventory management can be the best
way to solve the problem of overstocking.

3.
Yesterday, I am searching on Google "who are getting high salary in the world"
and it is quite startling for all of us that financial managers whose duty is to use the
funds of company effectively, are getting salary more than $110,640 per year
( information which is given by Forbes Magazine). This fact obviously reveals the
significance of financial management.

4.
An imprudent man never thinks return on investment but you are not imprudent.
So, get some knowledge of financial management, you can not endanger your
money.

5.
Financial management works under two theories. One theory reins bad sources of
fund. This theory elucidates us that we should think cost, risk and control and these
should be minimum when we get money from others. Only financial management
makes good financial structure to minimize cost, risk and control of borrowed
money. Second theory elucidates or clarifies us that we should think about time,
risk and return before investing our money. Our ROI should be more than our cost
of capital. Our risk of investment should be least. We should get our money with
high return within very short-period. All above things can be possible only after
study financial management.
Some other importance
In a big organisation, the general manger or the managing director is the overall
incharge of the organisation but he gets all the activities done by delegating all or

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some of his powers to men in the middle or lower management, who are supposed
to be specialists in the field so that better results may be obtained. For example,
management and control of production may be delegated to a man who is specialist
in the techniques, procedures, and methods of production. We ma designate him
Production Manager'. So is the case with other branches of management, i.e.,
personnel, finance, sales etc.

The incharge of the finance department may be called financial manger, finance
controller, or director of finance who is responsible for the procurement and proper
utilisation of finance in the business and for maintaining co-ordination between all
other branches of management.

Importance of finance cannot be over-emphasised. It is, indeed, the key to

successful business operations. Without proper administration of finance, no
business enterprise can reach its full potentials for growth and success. Money is a
universal lubricant which keeps the enterprise dynamic-develops product, keeps
men and machines at work, encourages management to make progress and creates
values. The importance of financial administration can be discussed under the
following heads:(i) success of Promotion Depends on Financial Administration. One of the most
important reasons of failures of business promotions is a defective financial plan. If
the plan adopted fails to provide sufficient capital to meet the requirement of fixed
and fluctuating capital an particularly, the latter, or it fails to assume the obligations
by the corporations without establishing earning power, the business cannot be
carried on successfully. Hence sound financial plan is very necessary for the
success of business enterprise.

(ii) Smooth Running of an Enterprise. Sound Financial planning is necessary for

the smooth running of an enterprise. Money is to an enterprise, what oil is to an
engine. As, Finance is required at each stage f an enterprise, i.e., promotion,
incorporation, development, expansion and administration of day-to-day working

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etc., proper administration of finance is very necessary. Proper financial

administration means the study, analysis and evaluation of all financial problems to
be faced by the management and to take proper decision with reference to the
present circumstances in regard to the procurement and utilisation of funds.

(iii) Financial Administration Co-ordinates Various Functional Activities. Financial

administration provides complete co-ordination between various functional areas
such as marketing, production etc. to achieve the organisational goals. If financial
management is defective, the efficiency of all other departments can, in no way, be
maintained. For example, it is very necessary for the finance-department to provide
finance for the purchase of raw materials and meting the other day-to-day expenses
for the smooth running of the production unit. If financial department fails in its
obligations, the Production and the sales will suffer and consequently, the income
of the concern and the rate of profit on investment will also suffer. Thus Financial
administration occupies a central place in the business organisation which controls
and co-ordinates all other activities in the concern.

(iv) Focal Point of Decision Making. Almost, every decision in the business is take
in the light of its profitability. Financial administration provides scientific analysis
of all facts and figures through various financial tools, such as different financial
statements, budgets etc., which help in evaluating the profitability of the plan in the
given circumstances, so that a proper decision can be taken to minimise the risk
involved in the plan.

(v) Determinant of Business Success. It has been recognised, even in India that the
financial manger splay a very important role in the success of business organisation
by advising the top management the solutions of the various financial problems as
experts. They present important facts and figures regarding financial position an
the performance of various functions of the company in a given period before the
top management in such a way so as to make it easier for the top management to
evaluate the progress of the company to amend suitably the principles and policies

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of the company. The financial manges assist the top management in its decision
making process by suggesting the best possible alternative out of the various
alternatives of the problem available. Hence, financial management helps the
management at different level in taking financial decisions.

(vi) Measure of Performance. The performance of the firm can be measured by its
financial results, i.e, by its size of earnings Riskiness and profitability are two
major factors which jointly determine the value of the concern. Financial decisions
which increase risks will decrease the value of the firm and on the to the hand,
financial decisions which increase the profitability will increase value of the firm.
Risk an profitability are two essential ingredients of a business concern.

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Advantages & Disadvantages of Financial Management

usinesses have many areas to manage to keep things working smoothly. Finance is just one of
these areas. Because finances impact virtually everything else the company does, it's
probably the most important thing a manager must address. However, there are both
advantages and disadvantages to financial management in business. Usually the pros
outweigh the cons, but managers still must be prepared to face the negative consequences of
tracking the money a business has and spends.

Research, Time and Knowledge

Financial management requires a significant amount of information, which takes time to

collect. Once the data is gathered, you must take time to analyze it properly and discuss it
with others involved. If you aren't sure how to approach a financial question, you must either
learn about it or call in an expert, especially as company objectives change or the market
shifts.

Cost

The expertise, information and time involved with financial management has a very real
price tag your company must take into account. You must pay those in your accounting
department or the consultants you hire, and even if you handle the finances of the business
alone, you cannot work for free.

Revision and Attention

The financial needs and situation of a business shift constantly, based on market variables
and the results of internal controls. For example, you may find that the cost of a part rose 10
cents from the previous budget period -- this drives up your cost of production and forces

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you to evaluate your budget. Financial management, therefore, is not a do-it-and-leave-it

task. You must revisit it and do so often.

Power

Managers often have to make the final call on where money goes in a business. Employees
may take it personally if you don't allot money to them or their projects. This can lead to bad
relations within the company.

Money Availability

When you manage your finances well, you know exactly what you're spending and what
you're earning. You also know when funds will be available. With this knowledge, it's much
less likely that you'll run into debt or be unable to pay back what you already owe. You know
that money will be available when you need it.

Planning

When you manage your business funds, reviewing the financial data allows you to identify
specific trends and make some forecasts for the future. Because your finances connect
directly to what you can do in the business, this lets you develop new strategies for your
operations and plan what you're going to do from both the short- and long-term perspectives.
You also can assess your areas of risk and take steps to fix problems.

Accountability

Financial management forces you and everyone else in the business to make a case for
everything on which they're spending. With proper financial controls, you also can prevent

23

instances of fraud. Financial management thus is a major tool for keeping everyone in your
business accountable.

Confidence

Proper financial management usually means that a company can grow in one or more areas,
or at the very least, remain stable. It also provides you with an opportunity to follow through
on your policies and plans. When these things happen, your employees and investors may
have more confidence in you as a business leader. This often translates into continued
loyalty.

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Role of financial management

Financial activities of a firm is one of the most important and complex activities of a firm.
Therefore in order to take care of these activities a financial manager performs all the
requisite financial activities.

A financial manger is a person who takes care of all the important financial functions of an
organization. The person in charge should maintain a far sightedness in order to ensure that
the funds are utilized in the most efficient manner. His actions directly affect the Profitability,
growth and goodwill of the firm.

Following are the main functions of a Financial Manager:

Raising of Funds

In order to meet the obligation of the business it is important to have enough cash and
liquidity. A firm can raise funds by the way of equity and debt. It is the responsibility of a
financial manager to decide the ratio between debt and equity. It is important to maintain a
good balance between equity and debt.

2 Allocation of Funds

Once the funds are raised through different channels the next important function is to
allocate the funds. The funds should be allocated in such a manner that they are optimally
used. In order to allocate funds in the best possible manner the following point must be
considered
The size of the firm and its growth capability

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Status of assets whether they are long term or short tem Mode by which the funds are
raised. These financial decisions directly and indirectly influence other managerial activities.
Hence formation of a good asset mix and proper allocation of funds is one of the most
important activity

3 Profit Planning

Profit earning is one of the prime functions of any business organization. Profit earning is
important for survival and sustenance of any organization. Profit planning refers to proper
usage of the profit generated by the firm. Profit arises due to many factors such as pricing,
industry competition, state of the economy, mechanism of demand and supply, cost and
output. A healthy mix of variable and fixed factors of production can lead to an increase in
the profitability of the firm. Fixed costs are incurred by the use of fixed factors of production
such as land and machinery. In order to maintain a tandem it is important to continuously
value the depreciation cost of fixed cost of production. An opportunity cost must be
calculated in order to replace those factors of production which has gone thrown wear and
tear. If this is not noted then these fixed cost can cause huge fluctuations in profit.

4 Understanding Capital Markets

Shares of a company are traded on stock exchange and there is a continuous sale and
purchase of securities. Hence a clear understanding of capital market is an important function
of a financial manager. When securities are traded on stock market there involves a huge
amount of risk involved. Therefore a financial manger understands and calculates the risk
involved in this trading of shares and debentures. Its on the discretion of a financial manager
as to how distribute the profits. Many investors do not like the firm to distribute the profits
amongst share holders as dividend instead invest in the business itself to enhance growth.
The practices of a financial manager directly impact the operation in capital market.

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Functions of Financial Management

Estimation of capital requirements: A finance manager has to make estimation with
regards to capital requirements of the company. This will depend upon expected costs and
profits and future programmes and policies of a concern. Estimations have to be made in an
adequate manner which increases earning capacity of enterprise.
Determination of capital composition: Once the estimation have been made, the capital
structure have to be decided. This involves short- term and long- term debt equity analysis.
This will depend upon the proportion of equity capital a company is possessing and
additional funds which have to be raised from outside parties.
Choice of sources of funds: For additional funds to be procured, a company has many
choices like Issue of shares and debentures
Loans to be taken from banks and financial institutions
Public deposits to be drawn like in form of bonds.
Choice of factor will depend on relative merits and demerits of each source and period of
financing.
Investment of funds: The finance manager has to decide to allocate funds into profitable
ventures so that there is safety on investment and regular returns is possible.
Disposal of surplus: The net profits decision have to be made by the finance manager. This
can be done in two ways:
Dividend declaration - It includes identifying the rate of dividends and other benefits like
bonus.
Retained profits - The volume has to be decided which will depend upon expansional,
innovational, diversification plans of the company.

Management of cash:
Finance manager has to make decisions with regards to cash management. Cash is required
for many purposes like payment of wages and salaries, payment of electricity and water bills,

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payment to creditors, meeting current liabilities, maintainance of enough stock, purchase of

raw materials, etc.

Financial controls:
The finance manager has not only to plan, procure and utilize the funds but he also has to
exercise control over finances. This can be done through many techniques like ratio analysis,
financial forecasting, cost and profit control, etc.

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Reference
http://businesscasestudies.co.uk/marks-and-spencer/financial-management-in-a-retailsetting/conclusion.html#axzz3nVQqosHM

http://www.managementstudyguide.com/financial-management.htm

http://www.yourarticlelibrary.com/financial-management/4-major-scope-of-financialmanagement/27968/

http://www.iibf.org.in/portal/documents/financialmanagement-moduleb.ppt

http://www.managementstudyguide.com/financial-management.htm

http://www.yourarticlelibrary.com/financial-management/financial-management-definitionaims-scope-and-functions/29384/

http://www.managementstudyguide.com/financial-management.htm

https://en.wikipedia.org/wiki/Financial_management

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Conclusion
Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying
general management principles to financial resources of the enterprise.financial management
and financial accounting are two major accounting systems used by various organizations.
Despite their use, they are totally different. Whereas financial accounting is prepared after a
certain period of time and used by external users, managerial accounting is prepared by the
management accountant for internal use of the management and it has no specific format to
be used hence no need for comparison with other organizations. The similarities of the two
range from mandatory certifications, use of currency, terminology used to similar technology.
Examples of managerial accounting reports available are the variance analysis, cost analysis,
return on investment, projections and digital dash boards.Financial Management means
planning, organizing, directing and controlling the financial activities such as procurement
and utilization of funds of the enterprise. It means applying general management principles
to financial resources of the enterprise.