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Unit-IV Financial Management
Unit-IV Financial Management
Unit-IV Financial Management
Financial Management
• Financial management seeks to plan for the future
such that a personal or business entity has a positive
flow of cash.
• It is a branch of economics that deals with planning
and controlling of financial resources of the business
enterprise.
• The term ‘financial management’ has a number of
meanings including the administration and
maintenance of financial assets.
The process of financial management may also
include dentifying and trying to work around the
various risks to which a particular project may be
exposed.
• Some experts refer to financial management as the
science of money management – the primary usage
of the term being in the world of financing business
activities.
However, the process of financial management is
important at all levels of human existence, because
every entity needs to look after its finances.
• Financial Management is management of finances
of an organization in order to achieve its objectives.
• From an organizational standpoint, the process of
financial management is the process associated with
financial planning and financial control. Financial
planning seeks to quantify various financial resources
available and plan the size and timing of
expenditures.
• Various tools of financial management are cost
accounting,, statistics, budgeting and ratio analysis.
• At the corporate level, the main aim of the
process of business organization is to achieve the
various goals a company sets at a given point of
time. Businesses also seek to generate substantial
amounts of profits with the help of a particular
set of financial processes.
• Financial planning aims to boost the levels of
resources at their disposal, while also functioning
on money invested in them from external
investors.
• Another goal companies have is to provide
investors with sufficient amounts of returns on
their investments.
• At the individual level, financial management
mostly involves tailoring expenses as per the
financial resources the particular individual has.
• Individuals who are in a favorable financial
position, with surplus cash on hand or
• access to funding, plan to either invest their
money for a positive return (which
• normally means that they have made more
money after calculating the double impact
• of tax and inflation) or to spend it on
discretionary items.
• Financial decision-making is also an important
part of the modern day financial
• management process. The particular entities
involved in financial management also
• need to be able to take the financial decisions
that are intended to benefit them in the
• long run and achieve their financial aims, which
is the basic premise of financial management.
Key Elements of Financial Management:
• Planning
• Reporting
• Management Cycle
• Managing Performance & Resources
• Allocating Resources
Functions of financial management
A. Executive functions
1. Financial forecasting
2. Investment decisions
3. Dividend policy decisions
4. Manage nets of funds flow
5. Cash flow management
6. Borrowing policy decisions
7. Cost control
B. Incidental Functions :
• These are the routine functions of the manager. It
includes:
• Record keeping
• Supervising cash receipts and payments
• Management of credits
• Management of assets
• Short term as well as long term planning for the
business activity
• Trade credit.
• Commercial banks.
• Fixed deposits for a period of 1 year or less.
• Advances received from customers.
Capital
• In economics, capital or capital goods or real capital
refers to items of extensive value. The term can also
be applied to the amount of wealtha person controls
or is capable of controlling.
• Capital goods may be acquired with money or
financial capital. In finance and accounting,capital
generally refers to financial wealth,especially that
used to start or maintain abusiness, sometimes
referred to as Cash flow.
Types of capital
1. Fixed capital or blocked capital
Fixed capital is that portion of the total capital that is
invested in fixed assets that stay in the business
almost permanently.
eg.land,buildings,vehicle,Equipment,Tools,
Furniture etc.
Financial Statements
Balance Sheet
• Shows the status of company’s financial position. It
is actually a snap shot at the instant it is prepared,
what the company owns and owes.
• Ideally, can be calculated every day; however
companies usually calculate on a quarterly basis.
• Shows the sources and applications of funds.
Balance Sheet Structure
Profit and Loss account
Ratio Analysis