DEFINITIONS OF FINANCIAL MANAGEMENT /BUSINESS FINANCE :
1. According to Soloman :
" Financial Management is concerned with the efficient use of important economic resource , namely capital funds."
2. According to S.C.Kuchhal,
“Financial management deals with procurement of funds and their effective utilization in the business.”
3. In terms of Wheeler,
“Financial Management is the activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives of business enterprise.”
4. Guthmann and Dougall defines business finance as,
“The activity concerned with planning, raising, controlling and administering the funds used in the business.”
CONCEPT OF FINANCIAL MANAGEMENT :
Financial management in a business means planning and directing the use of the company’s financial resources -- the cash it generates through its operations and the capital obtained from investors or lenders. Although a company may have an accounting staff or an outside accounting firm to provide financial guidance, financial management is one of the most important aspects of the business owner’s job.
All finance comes at same cost . It is quite imperative that it needs to be carefully managed .
Financial management is concerned with :
1. Optimal procurement -Different available sources of finance are identified and compared in terms of their costs and associated risks .
2. Usage of finance - The finance so procured needs to be invested in a manner that the returns from the investment exceeds the cost of procurement .
NATURE OF FINANCIAL MANAGEMENT :
•Part of overall management .
•Closely related with other disciplines .
•Continuous process .
•Different from accounting .
•Helpful in decision making .
•Wider scope .
•Both science and Art .
1.PROFIT MAXIMIZATION
2.WEALTH MAXIMIZATION
Profit earning is the main aim of every economic activity .
Stockholder’s current wealth in a firm=(No. of shares owned)*(Current stock price per share) .
The share’s market price serves as a performance index and it indicates how well management is doing on behalf of the shareholder.
Wealth maximization means to earn maximum wealth for the shareholders. So, the finance manager tries to give a maximum dividend to the shareholders. He also tries to increase the market value of the shares. The market value of the shares is directly related to the performance of the company. Better the performance, higher is the market value of shares and vice-versa. So, the finance manager must try to maximise shareholder's value.
ARGUMENTS IN FAVOR OF WEALTH MAXIMIZATION :
OBJECTIVES OF FINANCIAL MANAGEMENT:
1.PROFIT MAXIMIZATION
2.WEALTH MAXIMIZATION
1.PROFIT MAXIMIZATION:
Profit earning is the main aim of every economic activity .
A business being an economic institution must earn profit to cover its costs and provide funds for growth .
No business can survive without earning profits .
Profit is a measure of efficiency of a business enterprise .
Profit also serve as a protection against risk which cannot be ensured . The accumulated profit enable a business to face risks like fall in price , competition from other units .
ARGUMENTS IN FAVOR OF PROFIT MAXIMIZATION :
CRITICISM OF PROFIT MAXIMIZATION :
2.WEALTH MAXIMIZATION :
Stockholder’s current wealth in a firm=(No. of shares owned)*(Current stock price per share) .
The share’s market price serves as a performance index and it indicates how well management is doing on behalf of the shareholder.
Wealth maximization means to earn maximum wealth for the shareholders. So, the finance manager tries to give a maximum dividend to the shareholders. He also tries to increase the market value of the shares. The market value of the shares is directly related to the performance of the company. Better the performance, higher is the market value of shares and vice-versa. So, the finance manager must try to maximise shareholder's value. ARGUMENTS IN FAVOR OF WEALTH MAXIMIZATION :
CRITICISM OF WEALTH MAXIMIZATION :
