NATURE AND SCOPE OF FINANCIAL MANAGEMENT

• NATURE AND SCOPE OF FINANCIAL MANAGEMENT
  NET COMMERCE/NET MANAGEMENT
• FINANCIAL MANAGEMENT
• MEANING OF FINANCIAL MANAGEMENT
• IT WAS A BRANCH OF ECONOMICS TILL 1890 AND AS A SEPARATE DISCIPLINE IT IS OF RECENT ORIGIN, STILL IT HAS NO  UNIQUE BODY OF KNOWLEDGE OF ITS OWN AND DRAWS HEAVILY ON ECONOMICS FOR ITS THEORETICAL CONCEPTS EVEN TODAY.
• THE TRADITIONAL APPROACH TO THE FINANCE FUNCTION RELATES TO THE INITIAL STAGES OF ITS EVOLUTION DURING 1920 AND 1930.(CORPORATION FINANCE) . ACCORDING TO THIS  APPROACH,THE SCOPE OF FINANCE FUNCTION WAS CONFINED TO ONLY PROCUREMENT OF FUNDS NEEDED BY BUSINESS ON MOST SUITABLE TERMS AND THE UTILIZATION OF FUNDS WAS CONSIDERED BEYOND THE PURVIEW OF THE FINANCE FUNCTION.

• MODERN APPROACH
• THE MODERN APPROACH VIEWS FINANCE FUNCTION IN BROADER SENSE. IT INCLUDES BOTH RAISING OF FUNDS AS WELL AS THEIR EFFECTIVE UTILIZATION. THE MODERN APPROACH CONSIDERS THE THREE BASIC MANAGEMENT DECISIONS I.E INVESTMENT DECISIONS, FINANCING DECISIONS AND DIVIDEND DECISIONS.
• MEANING OF FINANCIAL MANAGEMENT
• FINANCIAL MANAGEMENT AS PRACTICES BY CORPORATE FIRMS CAN BE CALLED CORPORATION FINANCE OR BUSINESS FINANCE. FINANCE FUNCTION HAS GIVEN BIRTH TO FINANCIAL MANAGEMENT
• FINANCIAL MGMT IS THAT PART OF THE MANAGEMENT WHICH IS CONCERNED WITH THE PLANNING AND CONTROLLING OF FIRM’S FINANCIAL RESOURCES. IT DEALS WITH FINDING OUT VARIOUS SOURCES FOR RAISING FUNDS FOR THE FIRM. THE SOURCES MUST BE SUITABLE AND ECONOMICAL FOR THE NEEDS OF THE BUSINESS. THE MOST APPROPRIATE USE OF SUCH FUNDS ALSO FORMS A PART OF FINANCIAL MANAGEMENT.
• DEFINITION OF FINANCIAL MANAGEMENT
• THE SCOPE OF CORPORATION FINANCE IS SO WIDE TO COVER THE FINANCIAL ACTIVITIES OF  A BUSINESS FROM ITS INCEPTION TO ITS GROWTH AND EXPANSION AND IN SOME CASE WINDING ALSO. CORPORATION FINANCE DEALS  WITH FINANCIAL PLANNING,ACQUISITION OF FUNDS,USE AND ALLOCATION OF FUNDS AND FINANCIAL CONTROL.
• HOWARD AND UPTON,” FINANCIAL MANAGEMENT IS THE APPLICATION OF THE PLANNING AND CONTROL OF THE FINANCE FUNCTION.
• J.F BRADLEY,” THE AREA OF THE BUSINESS MANAGEMENT DEVOTED TOA JUDICIOUS USE OF CAPITAL AND CAREFUL SELECTION OF SOURCES OF CAPITAL IN ORDER TO ENABLE A SPENDING UNIT TO MOVE IN THE DIRECTION OF REACHING ITS GOALS.
• NEED OF FINANCIAL MANAGEMENT

1. FINANCE FUNCTION IS THE MOST IMPORTANT FUNCTION. IT REMAINS OF  ALL THE ACTIVITIES. THE NEED FOR MONEY IS CONTINUOUS

2. APPLICABLE TO EVERY TYPE OF ORGANIZATION
3. FINANCIAL PLANNING AND SUCCESSFUL PROMOTION OF AN ENTERPRISE
4. PROPER USE AND ALLOCATION OF FUNDS
5. TAKING SOUND FINANCIAL DECISIONS
6. IMPROVING AND PROFITABILITY THROUGH FINANCIAL CONTROL
7. INCREASING THE WEALTH OF THE INVESTOR AND THE NATION
8. PROMOTING AND MOBILIZING INDIVIDUAL AND CORPORATE SAVING

• NATURE/FEATURES OF FINANCIAL MGMT

1. IS AN INTEGRAL PART OF OVERALL MANAGEMENT. FINANCIAL CONSIDERATIONS ARE INVOLVED IN ALL BUSINESS DECISIONS
2. FINANCIAL DECISIONS ARE FOCUSING ON INCREASING/MAXIMIZATION/OPTIMIZATION OF THE VALUE OF THE FIRM
3. IT ESSENTIALLY INVOLVE RISK RETURN TRADE OFF DECISIONS ON INVESTMENTS. WHILE INVESTING FINANCIAL MANAGER HAS TO DECIDE THE LEVEL OF RISK THE FIRM CAN ASSUME AND  EXPECTED RETURN
4. IT ALSO AFFECT THE SURVIVAL,GROWTH AND FUNCTIONING OF THE  FIRM
5. FINANCE FUNCTION I.E INVESTMENT,RAISING OF CAPITAL,DISTRIBUTION OF PROFIT ARE PERFORMED IN ALL FIRMS
6. HAS TO BE COORDINATED WITH OTHER SYSTEMS
7. CONTINUOUS PROCESS

• AIM OF FINANCIAL MANAGEMENT

1. ACQUIRING SUFFICIENT FUNDS : TO ASSESS THE FINANCIAL NEEDS AND THEN FINDING OUT THE SUITABLE SOURCE FOR RAISING THEM.
2. PROPER UTILIZATION OF FUNDS:-UTILIZATION OF FUNDS IN SUCH MANNER THAT MAXIMUM BENEFITS IS DERIVED FROM THEM
3. INCREASING PROFITABILITY: FINANCE FUNCTION SHOULD BE SO PLANNED THAT CONCERN NEITHER SUFFERS FROM INADEQUACY OF FUNDS NOR WASTAGE OF EXCESS FUNDS.
4. MAXIMIZING FIRM’S VALUE: GENERALLY SAID THAT A CONCERN’S VALUE IS LINKED WITH ITS PROFITABILITY AND BESIDES PROFITS,THE TYPE OF RESOURCES,COST F FUNDS,CONDITION OF MONEY MARKET,DEMAND FOR PRODUCTS AND OTHER CONSIDERATIONS WHICH ALSO INFLUENCE A FIRM’S VALUE.

• ESTIMATING FINANCIAL REQUIREMENTS:

1. SHORT TERM AND LONG TERM FINANCIAL REQUIREMENT
2. THREE IMPORTANT ACTIVITIES OF A BUSINESS FIRMS ARE:

1.    PRODUCTION

2.    MARKETING

3.    FINANCE

3. A FIRM REQUIRE REAL ASSETS TO CARRY ON ITS BUSINESS AND INTANGIBLE REALS ASSETS FOR ACQUIRING TECHNICAL KNOW HOW,PATENTS,COPY RIGHT ETC
4. A FIRM SECURE THE REQUIRED CAPITAL AND EMPLOYS IT IN ACTIVITIES WHICH GENERATE RETURN ON INVESTED CAPITAL.

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• DECIDING CAPITAL STRUCTURE: REFERS TO THE KIND AND PROPORTION OF DIFFERENT SECURITIES FOR RAISING FUNDS AND DECIDED WHICH TYPE OF SECURITIES SHOULD BE RAISED. THERE ARE TWO TYPES OF FUNDS EQUITY FUNDS AND BORROWED FUNDS ( SHORT TERM/LONG TERM ) . PRUDENT TO FINANCE FIXED ASSETS THROUGH LONG TERM DEBTS AND IF THE GESTATION PERIOD IS LONGER THEN SHARE CAPITAL IS MOST SUITABLE. LONG TERM FUNDS SHOULD BE EMPLOYED TO FINANCE WORKING CAPITAL IF NOT WHOLLY THEN PARTIALLY. A DECISION ABOUT VARIOUS SOURCES OF FUNDS SHOULD BE LINKED TO COST OF RAISING FUNDS

• SELECTING A SOURCE OF FINANCE:- DECISION OF APPROPRIATE SOURCE
• VARIOUS SOURCES FROM WHICH FINANCE MAY BE RAISED :

1. SHARE CAPITAL
2. DEBENTURES
3. FINANCIAL INSTITUTIONS,COMMERCIAL BANKS AND PUBLIC DEPOSITS
4. THE NEED,PURPOSE,OBJECT AND COST INVOLVED MAY BE THE FACTORS INFLUENCING THE SELECTION OF A SUITABLE SOURCE OF FINANCING.

• SELECTING A PATTERN OF INVESTMENT :-

1. INVESTMENT PATTERN IS RELATED TO THE USE OF FUNDS
2. DECISIONS WILL HAVE T BE TAKEN AS WHICH ASSETS ARE TO BE PURCHASED
3. INVESTMENT IN FIXED ASSETS AND WORKING CAPITAL REQUIREMENT
4. A FIRM REQUIRES REAL ASSETS TO CARRY ON ITS BUSINESS . TANGIBLE REAL ASSETS ARE PHYSICAL ASSETS THAT INCLUDE FURNITURE AND BUILDING ETC AND INTANGIBLE REAL ASSETS INCLUDE TECHNICAL KNOW HOW, TECHNOLOGICAL COLLABORATION,PATENTS AND COPY RIGHTS ETC
5. THE DECISION MAKING TECHNIQUES SUCH AS CAPITAL BUDGETING,OPPORTUNITY COST ANALYSIS MAY BE APPLIED IN MAKING DECISIONS ABOUT CAPITAL EXPENDITURE. WHILE SPENDING ON VARIOUS ASSETS THE PRINCIPLES OF SAFETY,PROFITABILITY AND LIQUIDITY

• PROPER CASH MANAGEMENT:-
• IMPORTANT TASK OF FINANCE MANAGER,HE HAS TO ASSESS CASH NEEDS AT DIFFERENT TIMES AND THEN MAKING ARRANGEMENT FOR ARRANGING CASH
• CASH IS REQUIRED FOR :

1. PURCHASE RAW MATERIALS
2. PAYMENTS TO CREDITORS
3. MEETING WAGE BILLS AND DAY TO DAY EXPENSES
4. SOURCES OF CASH RECEIPTS: CASH SALES,COLLECTION OF DEBTS AND SHORT TERM ARRANGEMENT WITH BANKS

• PROPER CASH MANAGEMENT AND CASH FLOW STATEMENT
• IMPLEMENTING FINANCIAL CONTROL:

1. RETURN ON INVESTMENT
2. BUDGETARY CONTROL
3. BREAK EVEN ANALYSIS
4. COST CONTROL
5. RATIO ANALYSIS
6. COST AND INTERNAL AUDIT
   THE USE OF VARIOUS CONTROL TECHNIQUES BY THE FINANCE MANAGERS WILL HELP HIM IN EVALUATING PERFORMANCE IN VARIOUS AREAS AND TAKING CORRECTIVE MEASURES WHENEVER NEEDED

• PROPER USE OF  SURPLUS:
• A JUDICIOUS USE OF SURPLUS IS ALSO AN IMPORTANT FACTOR
• A BALANCE SHOULD BE STRUCK IN USING FUNDS FOR PAYING DIVIDEND AND RETAINED EARNINGS
• MARKET VALUE OF THE SHARES WILL ALSO BE INFLUENCED BY DECLARATION OF DIVIDEND AND EXPECTED PROFITABILITY
• INFLUENCE OF VARIOUS FACTORS SUCH AS :

1. TREND OF EARNING OF THE ENTERPRISE
2. EXPECTED EARNING IN THE FUTURE
3. MARKET VALUE OF SHARES
4. NEED FOR THE FUNDS FOR FINANCING EXPANSIONS