Just fix it and remove unwanted characters, etc. don't edit anything just supply what is lacking and fix some errors:  Definition — Financial Management

® Finance is the blood stream of every business

® Kuchal S. C. has defined Financial Management
as
“Financial Management deals with procurement

of funds and their effective utilization in the
business”
aspects of financial
management

———— ~
Efficient use of funds E
Functions of Financial Management
1. Forecasting Monetary requirements

@ Itis important for Goli to decide the following:

1. Purpose of funds-

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Amount required-

Goli has to determine for what all purposes funds are required i.e. For

Franchisee agreement or Raw material or Salary of employee or all of
the following.
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Functions of Financial Management

3. When — Funds are required in the beginning or after a
certain period of time.

4. Duration of Funds-
Repayment Schedule

5. Kind of Funds- Own Funds or Borrowed Funds.
Functions of Financial Management

2. Sources of Funds:

Own Funds Borrowed Funds

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Always better to strike a balance between the two.
Functions of Financial Management
3. Utilization of Funds

Once money is received

Functions of Financial Management
4. Dividend Policy

@® Once profits are earned goli has to take the
decision whether to reap the profits and take it
as dividend or keep it in business for future
expansion.

@ This decision is taken in financial management
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Functions of Financial Management

5. Analysis of performance

® Since Financial resources are
scare a company has to
analyze

» Utilization of funds in an
efficient manner

» Cost of raising funds is
reasonable
( dividend and interest is
the cost)

Functions of Financial Management
6. Role of Advisor

To
4

Financial manager

Functions of Financial Management

7. Day to day functions

® Financial Books

® Financial Statements

® Group of people : Debtors,
Creditors and Directors.

| Financial |
Statement.

Objectives of Financial
Management

Profit
maximisation

Objectives of Wealth

maximisation

financial
management

Social
objective

Profit Maximization |

« Earning profit is the prime objective

Ht

* Financial management aims at efficient use of monetary
funds. This leads to reduction is finance cost.

« Importance of profit maximization:

Difficult for a business without profits

Enables business to run smoothly

Helps business to generate employment

Helps in distributing higher dividend

Creates good public image

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Wealth

Profit Maximization ah . |
Maximizationg

Wealth maximization is a broad concept and includes profit

maximization.

Maximizing
Ith of
shareholders

Maximizing the
value or net

worth of the
business

The wealth of the shareholders is based on the market
price of the shares of the company.

Market price of shares wealth of shareholders

Wealth Social

Profit Maximization Maximization Objective

Need of social objective

Business organization cannot operate in
Isolation

Works in society and needs the society to grow.
Give and take relationship

Sr No Particulars

1

Employees

Customers

Suppliers

Government

Society as a
whole

Objective

Particulars

by providing adequate compensation,
incentives, good work environment etc

offering good quality products, affordable
prices etc
making proper payment on time

Disclosing correct income and paying taxes
on time

by optimum utilization of resources, following
fair trade practices, not causing pollution.

Financial

Planning )

@ J.H.Boneville has defined financial planning as

4

bE

Capital Structure

Two-fold aspects of

financial planning

Financial policies adopted or
intended to be adopted

Importance of Financial Planning

1. elps in achieving growth:

Because of financial plan,
business can determine how
much funds are required and
the source of raising the

same.

Thus financial planning helps
In getting the funds on time as

a result helping in expansion
of business. onl
Importance of Financial Planning
2. mproving image:

® With financial planning, funds'g
are available when payments §
are to be made hence there are
no defaults resulting In
improvement in the image of
business.

3. eam Spirit:

@ Financial plan is a master plan
and considers requirements of
all departments. Therefore, the
process of financial planning
requires information from all the
departments which are
interlinked with each other. This
process helps them to think in
the same direction and helps
build team spirit throughout the
organization.

Importance of Financial Planning
4. ost of funds:

Loans / Debentures/
Public Deposits
Equity and se
on ED) Dividend

This cost fluctuates due to
various changes in economy
like change in tax rates,
monetary policy, economic
conditions etc. Financial
planning takes into
consideration such changes.

5. mproves co-ordination:

@ All the divisions of business such as
production, purchase, sale, distribution, finance
etc. have to work together to create a effective
and efficient Financial Plan.

P )

Importance of Financial Planning
6. ecision making:

@ Financial plan helps to
take the decision as to
whether there is need for
funds and accordingly
either borrow or use
retained earnings.

Capital Structure

Equity Share Capital

Capital Means Structure means
Long Term Funds Composition

Preference Share
Capital

Borrowed Capital

Components of
Capital Structure

Retained Earnings

According to R. H. Wessel, capital structure is “

n
1. Equity share capital:

® oney raised by issue of equity shares is called as equity share
capital.

® The equity shareholders are the owners of the company and like
Sven One, they bear the risk and enjoy returns in form of
lvidend.

@ The dividend earned by equity shareholders is not fixed and it

Components of
Capital Structure

depends on the profits earned by the company.

2. Preference share capital:

@ Money raised by issue of preference share is referred to as
preference share capital.

@ Preference shareholders are given preference over the equity
shareholders while distributing dividend and also in repayment of
capital at the time of liquidation.

@ Further, they enjoy fixed dividend every year. They also get to
vote on matters related to them.
3. Borrowings:

@ A company can raise long term funds by way of
debt. A company can borrow funds from outsiders
In the following ways:

1. Bonds, debentures and public deposits
2. Loans

Components of
Capital Structure
4. Retained profits: E23

@ Retained profits = Net Profit — Dividend distributed
to shareholders

@® Retained profits are the profits of the business that
remain after dividend is paid to shareholders.
Factors influencing Capital

Structure

Internal Factors

1. Size of business:

Small Business Large Business
o 82
Limited Borrowing Huge Borrowing
Capacity Capacity
2 $
Greater risk for : :
Investor Less risk For investors
E 3 $
As less asset As More assets
base
ES a
Opts for Own Opts for Both own funds
Funds and borrowed funds

2. Future capital requirements:

@ A company will not require funds only once. It may require
funds at various stages.

If the company requires large amount of funds in the future,

it may opt for debt funds at present and later raise funds by
issue of equity shares

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Internal Factors
3. Ideology of management:

®@ Risk involved with borrowed capital.

@ Borrowed capital not repaid, the assets of the
company can be sold to repay the amount.

Risk appetite ¥ Borrowings #
Risk appetite § Borrowings J

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Internal Factors
4. Nature of business:
Manufacturing Trading
Company Company
Needs more Needs less
funds for plant funds for plant

and machinery and machinery

A 4 A 4

Opts for Own
Funds and Cp of on 1

Borrowed Funds

Internal Factors
5. Trading on equity:

@ Profit occurs in the following situation:

@ Therefore, a company which adopts trading on equity may
raise funds by issue of debentures and loans.