ASSIGNMENT ON FINANCIAL

MANAGEMENT

INDEX
 OBJECTIVE
 INTRODUCTION
 MAIN CONTENT
OBJECTIVE OF FINANCIAL MANAGEMENT
SCOPE OF FINANCIAL MANAGEMENT
RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT AND OTHER
AREAS OF MANAGEMENT
IMPORTANCE OF FINANCIAL MANAGEMENT
CONCEPTS IN VALUATION
 CONCLUSION
 BIBLIOGRAPHY

OBJECTIVE
1. To understand the nature and scope of financial management.
2. To explore the relationship between financial management and other areas of
management.
3. To analyse the present value and compound value of financial management.
INTRODUCTION
Warren Buffett famously stated, "The difference between successful people and others is not
a lack of strength, not a lack of knowledge, but rather a lack of will." This assignment
embodies this spirit, exploring the crucial role of financial management in achievin financial
success.
In today's dynamic financial landscape, effective management of resources is crucial for
individuals and organizations alike. This assignment delves into the realm of financial

management, aiming to understand financial management, explore the relationship between

financial management and other areas of management and the analyse the present value and
compound value of financial management.

MAIN CONTENT
Finance is regarded as the lifeblood of a business enterprise. This is because in the modern
money-oriented economy, finance is one of the basic foundations of all kinds of economic
activities. It has rightly been said that business needs money to make more money.
However, it is also true that money begets more money, only when it is properly managed.
Hence, efficient management of every business enterprise is closely linked with efficient
management of its finances.
Finance may be defined as the provision of money at the time it is wanted. However, as a
management function, it has a special meaning. Finance function may be defined as the
procurement of funds and their effective utilisation.
Financial management is mainly concerned with the proper management of funds. The
finance manager must see that the funds are procured in a manner that the risk, cost, and
control considerations are properly balanced and there is optimum utilisation of funds.
OBJECTIVES OF FINANCIAL MANAGEMENT

1) Maintenance of liquid assets

Financial management aims at maintenance of adequate liquid assets with the firm to always
meet its obligations. The investment in liquid assets should be adequate- neither too low nor
too high.
2) Maximisation of profitability
A business firm is a profit seeking. Organisation. Hence, profit maximisation is an important
objective of financial management.
3) Maximisation of wealth
Any financial action which creates wealth or which has a net present worth above zero is a
desirable one and should be undertaken. Any financial action which does not meet this test
should be rejected.
The operating objective for financial management is to maximise wealth or net present worth.
Wealth maximisation is, therefore, considered to be the main objective of financial
management.

SCOPE OF FINANCIAL MANAGEMENT

There are two approaches to financial management:
a) Traditional approach
b) Modern approach

a) TRADITIONAL APPROACH
The traditional approach limited the role of financial management to raising and
administering of funds needed by the corporate enterprises to meet their financial needs. It
broadly covered the following three aspects:
i. Arrangement of funds form financial institutions
ii. Arrangement of funds through financial instruments, such as shares, bonds,
etc.
iii. Looking after the legal and accounting relationships between a corporation
and its sources of funds.
Thus, the traditional concept of financial management included within its scope the whole
range of raising the funds externally.
The traditional approach evolved during 1920 and was popular but later it started to be
severely criticised and later abandoned on account of the following reasons-
1) Outsider-looking-in Approach: The approach equated finance function with the
raising and administering of funds. It completely ignored the viewpoint of those who
had to take internal financing decisions.
2) Ignored routine problems
3) Ignored non-corporate enterprises
4) Ignored working capital financing
5) No emphasis on allocation of funds: This approach confined financial management to
issues involving procurement of funds. It did no emphasise on allocation of funds.
 b) MODERN APPROACH
The traditional approach outlived its utility due to the changed business situations.
Technological improvements, widened marketing operations, development of a strong
corporate structure, keen and healthy business competition, all made it imperative for the
management to make optimum use of available financial resources for continued survival.
Computers helped in application of powerful techniques of operations research. The scope of
financial management increased with the introduction of capital budgeting techniques.
Efficient allocation of capital on suitable criterion became an important area of study under
financial management.
Thus, according to modern concept, financial management is concerned with both acquisition
of funds as well as their allocation.

RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT AND

OTHER AREAS OF MANAGEMENT
Financial management is an applied field of business administration. Principled developed by
the financial management from accounting, economics and other fields are applied to the
problems of managing finances. Moreover, every business activity requires money and hence
financial management is closely related with all other areas of management.

FINANCIAL MANAGEMENT and COST ACCOUNTING

Many companies have a separate cost accounting department to monitor expenditures in their
operational areas. The cost information is regularly supplied to the management for control
purposes. The information supplied by cost accounting is important and is required to make
suitable recommendations to keep costs under control.
FINANCIAL MANAGEMENT and MARKETING
Marketing is one of the most important areas on which the success or failure of the firm
depends to a very great extent. The philosophy and approach to the pricing policy are critical
elements in the company’s marketing effort, image, and sales level. Determination of the
appropriate price for the firm’s products is of importance both to the marketing and the
finance managers and therefore, should be a joint decision of both.

FINANCIAL MANAGEMENT and ASSETS MANAGEMENT

Assets are resources necessary for conducting the business of the firm. They include both
fixed and current assets. The acquisition of assets, their proper maintenance, etc. involve
finances. Similarly, the effective utilization of assets also affects the firm’s finances. Hence,
the finance manager is concerned with both acquisition and utilisation of the firm’s assets.

FINANCIAL MANAGEMENT and PERSONNEL MANAGEMENT

The requirement, training and placement of staff is the responsibility of the personnel
department. However, all this requires finances and therefore, the decisions regarding these
aspects cannot be taken by the personnel department in isolation n of the finance department.

FINANCIAL MANAGEMENT and FINANCIAL ACCOUNTING

Financial management and financial accounting are quite distinct from each other. Financial
accounting is concerned with the recording, reporting, and measuring of business

transactions. The information provided by the financial accounting is used by the financial
manager to make decisions to help the organisation in achieving its objectives. Thus,
financial accounting is a data collection process dealing with accurate recording and reporting
while financial management is concerned with the decision-making process.
Thus, financial management is closely linked with all other areas of management.

IMPORTANCE OF FINANCIAL MANAGEMENT

The importance of financial management cannot be over emphasised. In every organisation,
where funds are involved, sound financial management is necessary.
Sound financial management is essential in both profit and non-profit organisations. The
financial management helps in monitoring the effective deployment of funds in fixed assets
and in working capital.
Financial management also helps in ascertaining how the company would perform in future.
It helps in indicating whether the firm will generate enough funds to meet its various
obligations like repayment of the various instalments due on loans, redemption of other
liabilities.
Sound financial management is indispensable for any organisation. It helps in profit planning,
capital spending, measuring costs, controlling inventories, accounts receivables, etc.
Financial management essentially helps in optimising the output from a given input of funds.
Therefore, financial management is vital for any organisation to perform its functions
properly and to procure, utilise and manage their finances properly and effectively.

CONCEPTS IN VALUATION

1. COMPOUND VALUE CONCEPT

In case of time concept the interest earned on the initial principal becomes a part of the
principal at the end of a compounding period. For example, if Rs. 100 is invested at 10%
compound interest for two years, the return for the first year will be Rs. 110 (i.e., 100 +10).
The total amount due at the end of the second year will be Rs. 121 (i.e., 100+10+11).
 2. PRESENT VALUE CONCEPT
In present value concept, we estimate the present worth of a future payment/instalment or
series of payments adjusted for the time value of money.

CONCLUSION
From the above assignment, we can interpret that financial management is a very important
function of management and is very closely related to all the other areas of management.
The assignment explores the scope of financial management and we find that there are two
major approaches of financial management, traditional approach, and modern approach,
where traditional approach limited financial management to just the raising and administering
of finance, while modern approach not only concerned financial management with just the
procurement of finance but also involved the proper allocation of finance.
Further, we discuss the importances of financial management.
Finally, this assignment discusses about the concepts in valuations, which broadly involve 2
main concepts, compound value concept and present value concept.

SUBMITTED BY
Vidhipriya Thakur
70114901722
BBA (General) IV-C
BATCH 2022-25

BIBLIOGRAPHY

BOOK
1. Elements of Financial Management, Dr. S.N. Maheshwari