ADI SHANKARA INSTITUTE

Of
ENGINEERING & TECHNOLOGY
KALADY - 683574


A S S I G N M E N T



Assignment No : 02
Subject : FINANCIAL NANAuENENT
Topic : AINS 0F FINANCIAL NANAuENENT



07-AUG-2009
FRIDAY


Submitted To, Submitted By,
Prof. S. SASIDHARAN MUHAMMED ASHRAF A.K.
Faculty, Roll No :29
Dept. of Management Studies SEM - II, MBA 2008-10
ASIET Kalady. ASIET Kalady.





AINS 0F FINANCIAL NANAuENENT
According to the Encyclopedia of Social Sciences, Corporation Finance or Financial
Management deals with the financial problems of of corporate enterprises.This problems in-
cludes the financial aspects of the promotion of new enterprise and their administration during
the early devolopment,the accounting problem connected with the distinction between capital
and income, the administrative questions created by growth and expansion and finally the fi-
nancial adjustments required for the bolstering up or rehablitation of a corporation which has
come into financial difficulties.
FINANCE F0NCTI0N
Financial Management reffers to that part of the mangement activity which is concerned
with the planning and controlling of firms financial resources.It deals with finding out various
sources for raising funds for the business.Hence this finance is the lifeblood of every business
Finance function is the most important of all busines function.
0B}ECTIvES 0F FINANCIAL NANAuENENT
Financial Management is concerned with the procurement and application of funds.Its
main aim is to use business funds in such away that the firms value or earnings are max-
imized.Financial Management provides a framework for selecting a proper course of action and
deciding a viable commercial strategy.The objectives of financial mangement can be achived by
the following ways :
Profit Maximisation
Wealth Maximisation



PROFIT MAXIMIZATION
Profit earning is the primary objectiv of every business activity.A business bieng an eco-
nomic institution must earn profit to cover its costs and provide funds for growth.No business
can survive without erning profit.Profit is the measure of efficiency of a business enter-
prise.Profits also serves as a protection against risks which cannot be ensured.Thus profit max-
iization is considered as the primary objective of a business.
However profit maximization objective has been criticised on many grounds.A firm pur-
sueing the objective of profit maximization starts exploiting workers and consumers.Hence it is
immoral and leads to a number of corrupt practice.It leads into colossal inequalities and lower
human values which are an essential part of an ideal social system.
Arguments in favour of Profit Maximization
01.When profit earning is the aim of the business the profit maximization will be the obivious
objective.
02.Profitablity is the barometer for measuring efficiency and economic prosperity of a business
enterprise thus profit maximization is justified in the grounds of rationality.
03.Economic and business conditions donot remain the same at all time.There may be adverse
business condition like recession,depression,severe competition etc.A business will be able to
survive under these unfavourable conditions only if it have some past earnings to rely
upon.Therefore a business should try to earn more and more when situation is favourable.
04.Profits are the main sources of finance for the growth of a business.So a business should aim
at profit maximization for enabling its growth and devolopment.
05.Profitablity is essential for fullfilment of social goals also, through socio-economic welfare
of a society.


Arguments against Profit Maximization
01.The term profit is vague and is not precisely defined.
02. Profit maximization objective ignores time value of moneyand does not consider the magni-
tude and timing of earnings.
03.It does not take into consideration the risk of the perspective earning stream.Means some
projects are risky than others.
04.The effect of divident policy on the market price is also not considered in the objective of
profit maximization.
WEALTH MAXIMIZATION
Wealth maximization is the appropriate objective of an enterpise.Financial theory
asses that wealth maximisation is the sing;e substitute for a stock holders utility.Whn the firm
maximize the stock holders wealth the individual stock holder can use this wealth for maximise
his individual utlity.It means that by maximising stockholders wealth the firm is operating con-
sistently towards maximising stockholders utility.
AINS 0F FINANCIAL NANAuENENT
The primary aim of financial management is to arrange as much funds for the business as
are required from time to time.This function have the following aims :
AQ0IRINu S0FFICIENT F0NBS
R0ER 0TLIZATI0N 0F F0NBS
INCREASINu R0FITABLITY
NAXINISINu FIRNS vAL0E




AQ0IRINu S0FFICIENT F0NBS
Tha main aim of finance function is to assess the financial needs of an orgniztion and
then findout suitable source for raising them.The sources should commensurate with the need of
the business.If the funds are needed for longer periods then long term sources like
shares,debentures,long term loans etc must be explored.
R0ER 0TLIZATI0N 0F F0NBS
Through raising of funds is important but their effective utlization is more important.The
funds should be used in such a way that maximum benefit is derived from them.The return from
their use must be more than their cost.It should be ensure that funds are not remain idle at any
point of time.The funds commited to various operations should be effectively utlized.Those
projects should be preffered which are benefitial to the business.
INCREASINu R0FITABLITY
The planning and control of finance function aims at only profit maximization.It is true
that money generates money.To this profit maximization proper funds must be invested.Here
financial management is so planned that the concern neither suffers from inadequency nor
wastes more funds than required.
NAXINISINu FIRNS vAL0E
Finance function also aims at maximising the value of the firm.It is generally said that a
concerns value is linked with its profitablity.Even though profitablity influences the firms val-
ue but it is not all.Besides that, sources of finance,market conditions etc are also some factors
influence the value of firm.