Finance may be defined as the provision of flows of money at the time when it is required.

FINANCE

Public Finance Govt Institutions State governments Local Self-Governments Central Government

Private Finance

Personal Finance Business Finance Finance for NonProfit Organizations

Business finance is an activity or process which is concerned with acquisition of funds, use of funds, and distribution of profits by a business firm.

Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise

It deals with finding various sources for raising funds for the firm and allocation of funds and thus aiming at maximising the profit earning capacity of the organisation and also its wealth.

F.M. is Concerned with Decision Making

Investment decisions Financing decisions Dividend decisions Liquidity decisions.

In order to achieve the objectives of the financial management, the financial manager of the business concern, has to manage various aspects of finance function which lay down the scope of his duty. These aspects are discussed as under: 1. Estimating the financial requirement. 2. Determining the structure of capitalization. 3. Selecting a source of finance.4. Selecting a pattern of investment. 5. Management of cash flow. 6. Implementingfinancial control. 7. Proper use of surplus.

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Profit Maximization Wealth Maximization

Profit maximization is considered as the goal of financial management. In this approach, actions that Increase profits should be undertaken and the actions that decrease the profits are avoided.

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Profit Maximization is justified on ground of rationality Indicator of economic efficiency Efficient allocation and utilization of resources Measurement of success of business decisions Source of incentives Maximization of social benefit

Only successful with Traditional approach. It is Vague. It ignores time value of money It ignores quality aspect of profit from future activities

Wealth maximization decision criterion is also known as Value Maximization or Net PresentWorth maximization. The price of the shares which are quoted in stock market reflect the value of the assets of the company.

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Avoid High level of risk Reduction in cost Pay dividends Seek growth To maintain market Price of shares

Traditional Approach: According to Traditional Theory

the work of financial manager is the collection of the fund which is important only during promotion and expansion. Limitation of Traditional Approach: One side Approach Ignore the problems of non corporate enterprise More concern on raising finance on the occurrence of special events It ignores financing of working capital requirement. Ignore day to day financial problems Ignores allocation of resources

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Modern approach : Determination of financial requirement Raising fund from appropriate sources The allocation of finance in different assets Effective utilization and control of allocated fund Appraisal of use of funds Presenting performance and control repots from time to time to top level