Finance is known to be the life-blood of business. It is extremely important to carefully look after the financial transactions and activities that go on in a business. Proper analysis and insight is necessary in order to plan for the future. The word finance comes from the Latin word finis'. Finance is defined as the provision of money at the time when it is required. Every enterprise, whether big, medium or small, needs finance to carry on its operations and to achieve their targets. Without adequate finance, no enterprise can possibly accomplish its objectives. Finance is defined as the issuance, distribution and purchase of liabilities, and equity claims issued for the purpose of generating revenue producing assets. These claims are commonly referred to as financial claims. Finance refers to the management of the flow of money through an organization. It is concerned with the application of skills in the manipulation, use and control of money.
Finance can be classified into public finance and private finance. Public finance deals with the requirements, receipts and disbursements of funds in the government institutions like states, local self governments and central government.
[...] A decision has to be taken whether all the profits are to be distributed, to retain all the profits in the business or to keep a part of profits in the business and distribute others among shareholders THE A's OF FINANCIAL MANAGEMENT Anticipating financial needs The financial manager has to forecast the expected events in business and note their financial implications. He is supposed to meet the financial needs of the enterprise. For this purpose, he should determine financial needs of the concern. [...]
[...] Optimal capital structure The financial manager must establish an optimal capital structure and ensure the maximum rate of return on investment. The ratio between equity and other liabilities carrying fixed charges has to be defined. In the process, he has to consider the operating and financial leverages of the firm. Cost volume profit analysis Fixed cost, variable cost and semi-variable cost have to be analyzed. It must be ensured that the income of the firm will cover its variable cost. [...]
[...] On this information, management may take steps to reduce or eliminate wastages and inefficiencies occurring in any form, such as idle time, under-utilization of plant capacity, spoilage of materials, etc. Helps in decision making It supplies suitable cost data and other related information for managerial decision-making, such as introduction of a new product line, determining expoet price of products, make or buy, etc. Aids in formulating policies Costing provides information to enable the management formulate production and pricing policies and preparing estimates of contracts and tenders. [...]
[...] Working capital is the amount of funds necessary to cover the cost of operating the enterprise FINANCIAL MANAGEMENT DECISIONS Investment decisions Investment decisions relate to the determination of total amount of assets to be held in the firm, the composition of these assets and the business risk of the firm as perceived by the investors. Since funds involve cost and are available in a limited quantity, its proper utilization is very necessary to achieve the goal of wealth maximization. The investment decisions can be long term or short term. [...]
[...] and their effective utilization INTRODUCTION TO FINANCIAL MANAGEMENT Financial management is a managerial activity that is concerned with the planning and controlling of the firm's financial resources. As a separate activity or as a discipline it is fairly recent. It was a part of economy until 1890. It is concerned with the managerial decisions that result in the acquisition and financing of short term and long term credits of the firm. As such it deals with the situation that requires selection of specific assets as well as the problem of size and growth of an enterprise. [...]
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