This note does not have any practical problems.It just explains "What is Financial Management ?" and "Why it is so important?"
So What is Financial Management ? We have studied Cash flow,Fund flow,Ratio analysis ,Capital Budgeting ETC.ETC.These are all tools or methods or techniques used to make some decisions.
WHAT Decisions?..the precise answer to this is Investment decisions, Financing decisions and Dividend decisions.We may say that Financial Management basically means the sum of these decisions i.e. FM = Inv.decisions + Fin decisions + Div. Decisions
What is investment decision?
Capital budgeting is synonymous to investment decision in today's business world
Examples of investment decisions : A company buying a new showroom ,individual buying a flat , an industry installing new plant to meet the excessive production demand,etc.A manager will chose the best proposal out of the proposals prepared by the staff.The manager need to take care that the investment decision maximize the revenue at minimum cost i.e. the revenue generated by capital investment must be able to recover the cost of capital .The manager also need to take care that the decision will result to addition in shareholders wealth.
thus, investment decision encompass matters involving following areas:
Capital Budgeting( decision regarding buying or hiring or lease etc.)
Cost of capital
Risk measurement
management of current assets and liquidity.
What is Financing decision?
Simply speaking ,the decisions taken to execute the investment decision is financing decision.
There are many alternatives available to raise fund from market
For example a company may raise fund by issuing equity shares or debentures or preference shares or banks loans or by any combinations of these to execute the investment decision.
financing decisions are concerned about "How cost of funds be measured?.. "how proposals so prepared for investing decision be evaluated ?"... etc
What is dividend decision?
Here a manager has to decide whether the revenue/profit earned by a company must be distributed among the members.or to retain the same to utilize it further to generate more profit.
A financial manager follows 2 fundamental principles
1) THE BIGGER THE BETTER
2)A bird in hand is better than 2 in bush.
this simply means that the bigger benefits are preferred over smaller ones and early benefits are preferred over later ones.The Benefit must be BIG and EARLY!.
thank you!
So What is Financial Management ? We have studied Cash flow,Fund flow,Ratio analysis ,Capital Budgeting ETC.ETC.These are all tools or methods or techniques used to make some decisions.
WHAT Decisions?..the precise answer to this is Investment decisions, Financing decisions and Dividend decisions.We may say that Financial Management basically means the sum of these decisions i.e. FM = Inv.decisions + Fin decisions + Div. Decisions
What is investment decision?
Capital budgeting is synonymous to investment decision in today's business world
Examples of investment decisions : A company buying a new showroom ,individual buying a flat , an industry installing new plant to meet the excessive production demand,etc.A manager will chose the best proposal out of the proposals prepared by the staff.The manager need to take care that the investment decision maximize the revenue at minimum cost i.e. the revenue generated by capital investment must be able to recover the cost of capital .The manager also need to take care that the decision will result to addition in shareholders wealth.
thus, investment decision encompass matters involving following areas:
Capital Budgeting( decision regarding buying or hiring or lease etc.)
Cost of capital
Risk measurement
management of current assets and liquidity.
What is Financing decision?
Simply speaking ,the decisions taken to execute the investment decision is financing decision.
There are many alternatives available to raise fund from market
For example a company may raise fund by issuing equity shares or debentures or preference shares or banks loans or by any combinations of these to execute the investment decision.
financing decisions are concerned about "How cost of funds be measured?.. "how proposals so prepared for investing decision be evaluated ?"... etc
What is dividend decision?
Here a manager has to decide whether the revenue/profit earned by a company must be distributed among the members.or to retain the same to utilize it further to generate more profit.
A financial manager follows 2 fundamental principles
1) THE BIGGER THE BETTER
2)A bird in hand is better than 2 in bush.
this simply means that the bigger benefits are preferred over smaller ones and early benefits are preferred over later ones.The Benefit must be BIG and EARLY!.
thank you!
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