Financial Management Introduction

Finance

is the Lifeblood of Business. Without decent finance, no business can survive and without efficacious fiscal operation, no business can prosper and grow.

Finance is the study of money and funds management, procurement and operation of finances, possessed or espoused. It can be defined as the exertion concerned with planning, raising, controlling and presiding over the finances used in Business.

It deals with accession and allocation of finances. Finance Function Finance function is the process of acquiring and employing finances by business. In order to understand the fiscal function duly, it's essential to understand the following two approaches of fiscal Function-

1.Traditional Approach

2.Modern Approach

Traditional Approach:-

The Financial Management was an episodic event – the need for Financial Management arrives only in some big events like Mergers, Liquidation or Expansion. The fiscal function was limited to the procurement of funds only.

Modern Approach:-

According to Modern Approach, Finance Function means conditioning related to planning, procurement, control and administration of funds used in business.

In the ultramodern Approach

the fiscal Function can be classified into three broad decision conditioning – 

1.Backing Decision

2.Investment Decision

3.Dividend Decision

4.Objects of Financial Management

5.There are two well-known criteria in this regard: Profit Maximization

6.Wealth Maximization( Shareholder’s Wealth Maximization)

Profit Maximization

The introductory ideal of every business is the welfare of its proprietor. It can be achieved by maximization of Profit. Therefore, the financial decision of the establishment should be acquainted with the maximization of Profit. Under the new business terrain, this approach is considered as immoral, unrealistic, delicate and unhappy as it's Vague, ignores the Time Value of Money, ignores pitfalls and ignores social liabilities.

Wealth Maximization

Wealth maximization means to maximize the net present value of a course of action. For the purpose of maximization of wealth, the introductory ideal of a company should be to maximize the requested value of its shares, because the value of the enterprise to the shareholders increases when there's an increase in the requested price of the share.

The superiority of Wealth Maximization it's a better ideal because it has ensuing points in favour

1.it measures income in terms of cash flows

2.it honors Time Value of Money

3.it analyses threats and query

4.it isn't in conflict with other motives

Financial Statements

Financial Statement refers to a statement that shows the fiscal position and result of business conditioning at the end of the accounting period.
A complete set of Financial Statements typically includes a Balance distance, a statement of Profit & Loss, a cash inflow statement and those notes and other statements as explicatory material that are an integral part of the fiscal Statements.

Balance Sheet

A Balance Sheet is a statement of the financial position of a business establishment as of a specific date, which reports means, arrears, capital, reserve and the balances of other accounts of their separate book values.

Profit and Loss Account

The Profit & Loss Account is a financial statement which presents the earnings and expenditures of an enterprise for an accounting period and shows the redundant or short of earnings overcharges.

By: Dr. Manoj Sharma, Associate Professor, FMEC