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April 14th, 2015, 02:23 PM
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Join Date: Mar 2012
Re: IGNOU financial management tutorial

As per your request I am providing you some notes which was prepared by universities students. Hope this will benefit you.

Below are the detailed notes of financial management:

FINANCIAL MANAGEMENT:

AN OVERVIEW
Structure
1.0 Objectives
I. I Introduction
I 1.2 Nature of Finance Function
I .3 Evolution ofFinancial Management


OBJECTIVES
After studying this you should bc ablc to:
explain thc meaning of financial unanagelnent;
describe thc nature of financial function and evolution off financial management;
explain the key activities of financial manager and organization of finance
functions;
discuss the goals of financial managment and I-islc return trade off; and
discuss the challenges faced by financial manager.
Financial Management means management of finance/~lncls. Financial decisions are
important for the business firm as growth ancl developlnent of a finn depend upon its
financial policies. Any wrovg decision may affect the solvency of the Gnu. This unit
introduces you to the meaning o.fiinancial management, nature and the challenges faced by the fillallcial manager.

1.2 NATURE OF FINANCE FUNCTION

Meaning
Foundation of Finance directing and control of any activity in a business. The successfill business
management is closely linked with efficient use of its finances. Financial management
is concerned with planning, organising, directing and control of fillancia1 activities in a business. A firm has to decide the following:
I) From what sources tlie funds ninst be raised and how ~ii~icli from each source i.e., what should be tlie finance mix?
2) Where to invest those funds ? Wliat should be the composition of tlie assets of the firm?
3) I-Iow sliould the firm analyse, plan and control its affairs?
4) How large should a firm be so that it call grow fast?
Financial management, also called lnaliagerial finance or corporate finance, lias been defined by different writers as follows :
"Financial management is concerned with efficient use ofan impol-tant economic resource namely: capital funds. It is tlie study oftlie problems involved in tlie use and acquisitioli of funds". Ezra Solomon, The Theory of Financial Management: Columbia University Press (N.Y.) (1978).
"It can be broadly defined as the activity concerned with planning, raising, controlling and administering of funds used in tlie business." H. Guthman and 1-1. Dougall : Corporate Financial Policy (Engleword C1ifers)N. Y. Prenticc Hall 1980.
Thus, financial ~nanagelnent is concerned with managerial dccision tliat results in procurement of filnds and their effective ~~tilizatioli in tlie business.According to Ezra Solomon, "the filnction of financial management is to review ancl control decision to conlmit and recommit funds to new and on going uses. In adclitiori to raising funds, financial management is directly concel.ned with production, lnarketing and other functions within an enterprise whatever decisions are made about the acquisitioli or distribution of assets". From this statement, it is clear tliat the main function of financial management is not only to raise filnds but includcs Ilie broacler area of managing tlie finances for tlie firm more efficiently. T~LIS, the two main
decisions involved in a fir111 are:
1) Investment Decision and 2) Financingdecision including Dividend decision
1) Investment decision
The funds available lnay be invested in any project. The financial management provides a framework to make investment wisely. Investment decision relates to :
1) Management of working capital
2) Capital budgeting decision
3) Managelnent of mergers, reorganisation and disinvest~nellt
4) Buy or lease decisions
6 5) Securities analysis and portfolio management
The investment in fixed assets and management of current assets is major investment Financial Management : related problems in a company. Assets represent investment (or uses) ol'funds. An Overview
Investmen1 decision includes tlie decisions primarily relating to assets compositionfixed as will as current assets.

2) The financing decision is mainly concerned with identification of sources of finance and determining financing mix and cultivating sources of SLIII~S and raising funds. The two main sources of funds are sliarel~olders funds (owners' equity) and borrowed f~lnds. The cost of funds, determination of debt equity mix, impact of tax, depreciation, consideration of control and financial strain, interest rate and infliltion are some of tile factors ihat affect the financing decision. A balance is to be maintained between
owners' funcls and outsiders' funds and long term and short term funds.
A firm usually maltes use of both internal ancl external li~nds. 'The employment of these sources in various combinations is called 'financial leverage'. Dil'fercnt lypes of' analysis are required for this decision e.g., leverage a~inlysis, EBlT- EPS analysis,which we will discuss later in this course.Dividelzrl Decision
Tliis decision relates to disposition of distributable profit between dividends andretained earnings. Retainecl earnings being a source offilnding, dividend decision is concerned as part of financing decision oft;he firm. 'l'lie impact of levels of dividends and retention of earnings OJI marltet value of share and future earnings oftl.ie firm, funds required for fi~turexpansion, impact of legal and cash flow constraints ancl the future boom or recession are some factors that affect this decision. Retention of earnings depends LIPO~ reinvestment opportunities available and tlie oppol-tunity to
generate satisfactory rate of return for the shareholders. Dividends may be paid in cash or in the form of bonus shares. These ancl other aspects of dividend decision will be explained in detail later in this course.


1.3 EVOLUTION OF FINANCIAL MANAGEMENT
Finance rnanage~nent emerged as a separate field from accounting in 1900. The enterprises became big with colnplex decision to be made and requirement for huge fillids growth in technological innovations and creation of new industries resulted in further neecl of f~inds hence promoting tlie of finance to enlpllasise on investment, liquidity and ,financing ofthe firms.
Tlie depression of the 30's meant firms had to concentrate on defensive aspect ofsurvival, preservation of liquidity and reconstruction. Business lackecl filnding, those institutions which were w~lling to lend required exorbitant interest rates. During those times finance manager had tlie responsibility of ensuring that the enterprise was having optimal usage of funds, avoiding unnecessa~y expansion programmes and maintaining
the loyalty of existing customers'. Use of computer brought better and ti-uitlill analysis of fina~icial perfonnance, Introduction of various financial instrulnents in 1990s replacing hard cash as a transfer of f~111d.s and financial ~iianagement enierged as a distinct management discipline and is linked to changes in business and socio-economic scenario, brought about by the advancements in information technology, multi division corporation and increasing global competition. The 21st century has brought globalisation tl~rougli merger of firm, increased competition, access to international
mmkets and need for quality products. Financial mal~agement is important in all types of business as well as not for profit organizations like hoospitals and schools. Sound financial management is necessary for
lie survival and growth of an enterprise.


And if you want some more tutorial or study material please inform me.


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