Chapter 1

NATURE AND SCOPE

OF FINANCIAL
MA NA GE ME NT
LEARNING OBJECTIVES
After studyin g this chapter, you should be able to:
♦ Identify the approaches to Fir:ancial Management.
❖ Understa nd the meaning and functions of Financial Management.
❖ Understa nd the objectives and scope of Financial Management.
❖ Relate finance with other activities.

❖ Understand the organisation of Financial Function.

❖ Understa nd the importance of Financial Management.

❖ Understa nd the chaning role of Financial Manager in India.

g
' Financia1__1!1.~!§gement i~....s__uch_a manag e!~ E!,OCess which is concern e~ wit~_the plannin
of study
and control of financial resourc es) Financial manage ment was started as a separate subject
in the 20th.ce ii6iiy-:- Till ~ow it was used as a part of economics. As an educatio nal subject. its scope
ment,
has underg one some basic changes from time to ume. In the initial years of its develop
.. But accordi ng the
financial manage ment was concern ed only with collection of funds for business
the basic
modem viewpoi nt, not only collection of funds but also their proper utilisation are
analyses all financial
function s of financial manage ment. In present times, financial manage ment
and he
problem s of a business. Financial manage r has become an importa nt constitu ent of business
s the require ment of
provide s his significant contribu tion to all business activities.(He estimate
ds and
fu12.Qs, pli!.!1§ the differen t sources of funds and per.furm:; the functions of collectio1!_2[f!m
!file, prodY.ru !)n, etc. )
their e~ctive utilis ~ As all the business activities like marke tin~c!
duties and
include the creation and utilisation of funds, financial manage r must be clear about his
about the financial
responsibilities in relation to these activities. Besides, he should also be clear
te funds and
objectives of the firm. For the success ?fa~y business, it is necessary to procure adequa
ship busines ses is
to utilise them efficiently. The orgarnsallon of sole proprie torship and partner
finances. But
persona l. Moreover, due to limited n~eds oftl~ese businesses, it is easier to manage the
r, is a comple x job.
to manage finances for the corpora tions, wluch are non-per sonal in characte
and
Finance is such a powe~ful s.o~~ce that it perform s an importa nt role to operate
Finance ,
co-ordi nate the v~rious econom ic actlvllies of business. Finance is of two types: (1) Public
and (2) Private Fmance .
 ' r ., •. • .---.c., ~ .- r '" r
, 1 ,..-f T

Financial Management .
h. h h rinc iples and prac tices relat ting d
ent finan ce und er w IC t e P
Publ ic finan ce mea ns gove rnm l nme nt Stat e gov f"
ernm en an
me of the
the cent ra gove r .,
to the proc urem ent and man agem ent of fund s for ces
O
mco .
obse rve whic h are the sour the gov ernm ent IS
local bodi es are cove red. In the publ ic finance, we d tern of
spen d them . The Bu g~ta ry ~ys d it The grow th
publ ic auth oriti es and how they
Public debt IS also mclu ded un er · ·
cons ider ed as an imp orta nt part of publ ic finance.
of financial man agem ent.
of a nati on depe nds upo n the suita ble prin ciple s s by
. • ns proc urem ent an d m anag eme nt of fund.
Con trary to this the priv ate finan ce mea · d · ·d l d pnv ate
' insti tutio ns. Und er it, we obse rve as to how the m IVl ua s an
indi vidu als and priv ate
insti tutio n proc ure and utilise fund s.
Priv ate finan ce can be sub- divid ed as:
(I) Pers onal Fina nce (2) Busi ness Fina nce, and
(3) Fina nce of Non -pro fit Org anis atio ns.
s and prac tices rela ted to man agem ent of
Pers onal Fina nce inclu des the analysis of prin ciple
day to day fund s of a pers on.
esse s and prac tices of the prof it mak ing
Busi ness finan ce stud ies the financial prob lems , proc
e and services.
orga nisa tions inclu ding indu stry, trad e, com merc
y of tran sact ions and even ts uf char itab le,
Fina nce of non- prof it orga nisa tion covers the stud
religious, educ atio n~ insti tutio ns, etc. '·
Business finan ce stud ies the man agem ent of finan ce for thos e orga nisa tion s whic h ope rate
s
how and from whic h sour ces thes e orga nisa tion
with the objective of earn ing prof it. It find s out
scop e of busi ness fina nce is quit e wide . It cove rs
raise finan ce and how they utilise thes e fund s. The
ersh ip firm s, com pani es and corp orat ions . In
the financial arra ngem ents for sole trad ers/p artn
orat e sector, the stud y of Cor pora te Fina ncia l
pres ent times, due to incr easi ng significance of corp
The man agem ent of corp orat e fina nce is a wide
Man agem ent is unde rtak en as a sepa rate subject.
ent of fund s for the day to day oper atio ns as ~ell
subj ect which covers with in its scop e the man agem
and the anal ysis of othe r fina ncia l prob lems .
as for the futu re grow th and expa nsio n of busi ness
n are also give n spec ial atten tion . Alth oug h,
Proc urem ent of fund s and thei r efficient utili satio
ciate d with fina nce, thei r prob lem s are kept
purc hase , prod uctio n and mar keti ng are also asso -
outs ide the prev iew of finance. ·- - ----
it is nece ssar y to mak e clea r the mea ning
In orde r to unde rstan d the term 'Bus ines s Fina nce'
ness mea ns thos e activities whi~ h_~~~ perf orm ed
o~ term 'Bu~in~ss' and 'Fina nce' sepa ratel y. Busi
ities incl ude indu stria l prod ucti on, agri cult ure,
with ~e obJec_t1ve of earn ing prof it. The se activ
activities, etc. The serv ices like thos e of doct ors
fisheries, bank mg, tran spor t, mini ng, com merc ial
ness activities. Thu s, the term busi ness is ~
lawyers, acco untin g, etc. are also inclu ded in busi
indu stry ·and services. ---· ·--·
com preh ensi ve term whic h inclu des, com merc e,
I
in actu al prac tice: from the view poin t of
/,
_Finance in the com mon sens e mea ns money. But
' rent ly by diff eren t auth ors.
finan cial man agem ent, the term finan ce has been defi ned diffe
· · h d s. Acc ordi n I the
M oreo ver, th ese view pom ts ave un ergo ne a grea t chan ge in the rece nt time g y,
term fina nce is view ed as und er:
(i) As per the trad.ition al. appr oach , finan ce mea ns proc urem ent of fund s O n app ropr iate •
. .
term s. Acco rdmg ly, It stud ies. finan cial insti tutio ns ' sour ces of fin ance , nece ssar y
. • f
quan tum of fund s. and t h.e t1m mg of thes e fund s · But thi"s 1·s a narr ow view 0
.
ct but igno res the othe rs.
fina nce be~ ause 1t give s imp orta nce to one aspe
 1 Nature and Scope of Financial .. .

(ii) second approac h to finance considers it as cash . Because all the transacti ons in an
organisation can be exi)ressed in finance therefore ' the finance manager is concerned
.h '
wit each activity of the institution . It means that financial manager has to keep an eye
on every transaction of the institution. But this meaning of finance is highly
comprehensive.
(iii) Acc~rdin~ly to another viewpoint, finance is concerned with procurem ent of funds and
th ell' efficient utilisation. Therefore, the duty of the financial manager is not only to
procure adequate funds but also to see that these funds are also properly utilised.
This meaning of finance is considered the most suitable.
From the above, it is now clear that the term 'Business Finance' deals with procurin g funds
from differen t sources on fair terms for the business and to utilise them efficiently for
achievin g business objectives.
According to Guthmann and Dougall, "Business finance can be broadly defined as the activity
concerned with planning, raising, controlling and administering offunds used in the business."

__■_Appro~s to F~~ance Function_or.£jnanciaLManagem~nt)

o understa nd the scope and functions of financial ~anagem ent, it becomes essential to
explain its approaches. The importance of financial manager in the business is increasing with the
passage of time. The financial manager occupies a significant place in modern business. He is an
active member of the top management group. His work is not only limited to maintaining records,
preparin g reports or to procure adequate funds from differen.t sources but his role is also assuming
greater significance in solving difficult and complex problems of business. He is now being held
responsible as maker of business destiny. Therefore, it has become essential for the financial
manager to adopt a more comprehensive and foresighted approach. His decisions affect the size,
growth and expansio n, profitability and risk of business. But he had not always been considered an
importan t person in making such decisions. However, today he is considered an importan t
functionary. The following are the two approaches to financial management or finance function.
(A) Traditional Approach to Finance Function:(!his :approach w~s de'veloped a~nd
twentieth centuri) .;nder this approach, financial _!llauagenienrwas-·conside-red as ·!Corporation
Fin~ce'.YT nd;r this approach, the financial management was used to procure and administer
funds for the corporation. The following three things were used to be studied for the procurem ent
~fimnr e. ·

'
.- \
(i) nstitutional sources of financ~
'

.,---@) I_ssue of ~na~cial _i?~~rume~ts to _co~l~~t_ne:e~sa~~ f~nds :1:om

the ~apital m~~k. ~
.
~.)
-
___-Jiii) L~gal and ~ccountmg relat1onsh1p ·between the b~ss ~nd source of finance.
Accordmg to this approach,@nanc_~ _~ !}eeded ~~J for r~~tme matters but for sp(2r3:dic _
e~_~nts like prom~~!<?~• ~~~~g~n isation~ ~ns_i~~~!.9~id:~~n, ~.=.ft1ana~_!}g_p~~~ds for these events
was considered an importan t function orfinanc ial manager. l'he financial manager was not
concerned with internal financing rather he was supposed to maintain relationship with outside
parties and financing institutions. According to traditional approach, he was not responsible for the
efficient use of funds. His duty was to get necessary funds on fair terms from the outside parties. The
traditional approach of the finance function continued till the fifth decade of the 20th century.

5
 Financial Management

■ Limitations of Traditional Concept

The traditional a ppr oach to fin ance fun ction e mph asises on p r ocu r ement ?f fu nd s only ~y
corporations. Therefore, this a pproach is con sidered d efective a nd n arrow. Followmg are th e mam
limitations of tn'fs ap proach : ·' · "·
(1) One Sided Approach: T h is a pproach gives m o re atten tion to procurement o~~n~s and
th e problems attach ed to their ad mi n istratio n bu t ignores the efficient ut~sau on . of
fund s. T h is approach a ttach es m ore sign ificance to th e viewpoint of outside. parues
(Banks, fi n ancial institu tions, investors) who provide funds to th e business but ignores
th e internal parties who ta ke fin a ncing decisions. It is , therefore, termed as
ou tsid er-looking a pproach .
(2) More Emphasis on the Financial Problems of Corporations: This approach focused
attentio n only on the fina ncial problems of corporate enterprises but non-corporate
enter p r ises, e.g., sole trade and partnership firms, remained outside its scope. It has-,
thus, narrowed the scope of finance function.
(3) More importance to Sporadic Events: This approach considers the finance section to
p r ovide funds on sporadic events like incorporation, mergers, consolidation,
reorganisation, etc. and ignores the day to day financial problems·ofbusiness enterprise.
(4) More Emphasis on Long term Funds: This approach gives more importance to the
problems oflong-term financing. Working capital financing decisions are kept outside
the scope of finance function.
Thus, traditional approach ignores the central issues of financial management e.g., should an
enterprise commit capital funds to certain purposes? Do the expected returns meet financial
standards of performance? How should these standards be set and what is the cost of capital funds to
the enterprise?
(B) Modern Approach to Finance Function: By the end of l 950's technological
improvements, development of strong corporate -s tructure and increasing competition made it
essential for the management to make optimum use of available financial resources. Traditional
approach became less effective in the changing business environment and accordingly, this new
appr oach developed.
According to this approach, financial management considers the broa<;l~r. and analytical
viewpoint. According to this approach, financial management is concerned with both acquisition of
funds and their effective and optimum utilisation. Arrangement of funds is an important
component of the whole finance function. This viewpoint not only considers the sporadic events but
also the long-term and short-term financial problems. The main components of this approach
include financial planning, evaluation of alternative uses of funds, determination of cost of capital,
capital budgeting, working capital management, determination of financial standards for the
success of business, management of income, etc. Therefore, according to this approach, three
important decisions are taken under financial management.
(i) Investment Decision.
(ii) Financing Decision, and
(iii) Dividend Decision.

6
r -

1 Nnture and ScoptJ of Finarn;lw,,,

I Characteristics of Modern Approach

The following- m·c the .,
. · lll,ll ll d lill 'U<'l< ~ri Nt ic:11 or modern ii pp mad I:
(1) More En1pluv,iN , 11 ]," ,• _ , , ,
· > munuul l>ud,uomu AHc:orriparcd to 1JJc trnd1t1<m,d approa<;h,
mo<,'1crn , , appro·,rh
' i14 1 cIc:11nipliV(! a11d 111orc arrnlytical. D,w to incrc~ing 8ize of
css
1ms111essand com1>·tit 1011 ' I •
• •• . c , 11111111cHH 11111mt,KCtrHH1t c:an 't afford u, take cfodisic,n11 bt:tHcd on
Ill 1llllton . 1{1nht d(• ,•1111011• 14 I
I· n < <:all >e 1.11lw 11 ouly on the: l,,111i~ of 111.atiHtit:ttl and aa :ounting
c ,,ta. Such clcdsion11 l
1: rc lc1-1R 1·i11ky.
(2) Financial Mnnaurt~ 11 , l nn 1mportunt Component of Bu,une88 .
. . o · um ns Management: Under
the trad11 tonal '.,111·wo·t ·1 , - . . • • •
. .: ' t 1 o11111a11ec 1u11 ct1on, 1manual mana~<:r wa11 not comudt red to
be SJ(Y'l1lhcant
• c-,
in· cl('c1·
• ,,
"1·c, 11 111,1 · 11,ut now, h e JH
, k'111g. ·
· c<mHJ<· Jere,J an Jmportant part of
busmcss and he allccts th e important dcd11ions oft,uHinc,is.
(3) Continuous Function: Under traditional approach, finanda) management was used to
arrange funds for sporadic events only but under tli P. modern apprm.1.ch, financial
management is a continuous activity and a financial manager has to take various routine
financing decisions also.
(4) Broader view: The modern approach to finance function expresses broader view as it
gives much importance to the optimum use of finance alongwith the procurement of
funds. Besides this, it also includes aspects relating to financial planning, capital
budgeting, cost of capital, etc.
(5) Measure of Performance: Financial decisions also affect the performance ofbusiness. If
the financial decisions add to the value of firm, they will be considered good. To
maximise the value of firm, a proper balance between profitability and liquidity is must
Modern approach to finance function explains that the maintenance of this balance in
profitability and liquidity, is the main function of financial management.
I ' I
' -1i 14 ,." . i A \
\ , •/.'. Ii!'

■ Meaning and Functions of Financial Management

Financial management is an integral part of business management. The decisions taken at
the toU .vel cannot be implemented without the consultation and agreement of financial ·
management. Financial man'a gement or finance function can be defined as under:
According.to Weston and Brigham, "Financial management is an are-a offinancial decision-making .
harmonising indivui:ual motives and enterprise goals." Some other definitions are:
"Financial management is the operational activity of a business that is responsible for obtaining and
effectivej!!tilising the funds necessary for efficient operations." r· - J. L Massie

(!he finance_l~i!!!};.!!_the pr9cess_of~JJ-j:1,~K a~y,tilisingfunds by a ~i~~ -R. C. Osbom

"Financial management is the area of business management devoted to a judicious use of capi,tal and a
careful selection of sources of capital in order to enable a spending unit to move in the direction of reaching its
goals." -J.E Bradley
G the end, we c.3n say, finance funft~on ?1eans a~r~ngem~_n t ~cessary fupds fQI business,
optimum use of these funds, _a~~~termm_at~on ?f d1_v1d~Q.d policy so that value. of firm can be
maximised-:-] -- -· ' ·

7
 - - -•-•1lll'&&WliJliJIJBJJflll21JJ/7IJJ.lfJl11fullli■
I - - - •- - -

Fina/ al' Management · ·

/ ; ,r
Jfunction
. .
s of Financial Management
I
.
im ortant functions m
. a business institution
.. .
/ Financial managem ent performs severa P . . These are Investme nt Dec1s1on,
. . . .
/ Fmanc1al managem ent normally takes th1.ee im_ . rtant dee1s10ns.
I?? .. ··d· .. h · ·decisions, 1.t 1s
. 'bl c
also responsi e 1or
. . .. . . . . d . ,. Best es t ese . li
FmancmgDec1S1on, and D1v1dend Policy eci swn. d'ng to the modern spec1a sts,
.. . . 1 ~ fi d Therefor e, accor I F .
· financial plannmg and controllm g t 1e un s. . . .
, . ( ) Manager ial Fmance unctions,
.
financial managem ent funcllons can be d'1v 1'<led mto two p,trts. a
and (b) Routine Functions. 11' g and performa nce
Managerial Finance Functions need e ffi . t planning , contro m
· -icien
evaluation. . .. b h are required for the
.
Routine Functions do not reqmre muc h manager '.
ial skills ut t ey
f . and normally performe d at
erforman ce of manageri al functions . These are clenca 1 . unctions . nature
P
lower levels. These functions can be of (1). recurrmg
· Or (ii) Non-recu rrmg
.
·
c d
. . . fi ncial activities which are per1orm e
Recurrin g finance funct10ns mclude those ma
regularly for efficient business operations. . .
. d metimes e.g., financial planmng at
Non-recu rring finance functions are performe on1y so 1 . rangeme nt
. f
the time of promotio n ofcompa ny, valuat10n o asse s at rt the time of ama gamauon , ar
of funds in absence of liquidity of funds, etc.
On the whole, the main functions of finance are as follows:_
(1) Financial Planning

(2) Financing Decision

(3) Investment Decision
(4) Dividend Policy Decision
(5) Financial Control / l'-'eufo-l ~~)
(6) Incidental Functions L!. - 0 (J
(~nanc ial Planning :The for~mos(f.unction of financial ma,nagcr is to prepare financial
~ an for the bus\ness. Financial _pl~nning means· the. determin ation of _the -~eed of
requirecf fu nds, the period·and the· prop~tio n o_f these fuads 'for the achievem ent of
organisa tio~l objectives. The plan should be prepared from long-term viewpoin t so
that necessary funds required for the expansio n program mes of ffie firm, and renewal
of plant and machinery, could be arranged and the available funds could be properly
used)n order to prepare financial plan, proper co-ordin ation in cash inflows and cash
outflows is essential \vhile prepa ~ncia l plan, first of all short-ter m and long-term
objectives·are deterfli~ d. Later, necessary funds required for the organisa tion and the
period of requirem ent ai:e·e·stimated. After it, capital structure is formed. It explains
which sources ~ill he, employed al\d in what proportio n the funds will be collected. To
impleme nt the financial plan, financial policies and processes are determin ed. While
preparin g financial plan, financial manager should take into account the ·nature of
business, economic circumstance's, managem ent attitude toward.s risk, future exp~nsio n '
program mei, profitability of business, etc.
(2) Financing Decision: Second importan t function of financial managem ~nt is to collect
funds from different sources for the fulfilment of business nee.gs. This decision is a part
8
 1 Nature ~Scop e of Financial ...
· · I
of capital strnrt 111 . ( " .
,-111 b · r . ,ilpllal ~1111c 1111 e cl('l<·trni11t!I from whic b ,.ur,c"P«f'~sary capita
· th<· ~hard1oldcr~ wufd · he ma:<1m1· · ~ed .\ :In ot t1er
"
, . 1-: r prornrc - d so I Iiat h ' fttr m for . • • d_J · I
,,oics, it cktrr111 mes · , J • .. • of dd,r ,111d <·<11111y, apir.tl 111 the toral fun s requirec .
I 1c 1,1t11>
Tl terc~should hl' p 1 f · ·~ · h
. opn I>a tanc c hrlw<•f•n d<:l,r anc eq11iry f,er,111 ,c any <.hange mt em
wo uId a fleet I he v·•1I11 c o1· 1·Jrm . ,r I1e rapir.tl , r rw t11re whid1 · · de bt securitie
util1,<'f
··s
ad.equately · · srrttctur e. In <:alie of optimum ca pita · I structur e,
·k • r-cI optimum
is· call ca p11,1l
m~ll . et \'alue of the securitie · · s o f' fi1rm 1·s maximu · m and w,t of c-ap1ta · · m.
· 1 1·~ mm,mu
.
0 rd manly debt · I · -· · · · al
. _ ' . . ts cons1·cIere d a c 1eaper source of ca pital. To ra1~ eqwty cap1tc ,
P1ospectu s 1s issued and services of underw riters are used.
3 s in
( ) Inve trnent Decision: Investm ent decision s are concern ed with the se lection of assets
aJI
~•hich th e investm ents will be made by the compan y. Her~t is importa nt to note that
d · · - f • '
mvestm ent
. . . ecis10ns are not taken by the financial !!}anager him~lf but are taken ir.
J
part1cip at1on witn the marketi ng, product ion and ~ihe;-d epartme nt;:- Financift
manage r arrange s funds for the assets to b~ usea in these departm ents,-an o analyses
be
cos~ and benefits accruin g from these assets so that corpora te objectives could
achieve d. It is the responsi bility of financial manage r to see that short-te rm and
long-te rm funds are rational ly invested in the firm. In fact, financin g decisions of the
I firm are affected by investm ent decisions.
)

The assets a~_g!!_ir_e~ for business can be divided into two parts:
'(i) L?ng-te ~m or fixed asset~ which are used for earning over a longer period.
(ii)...-.Short- term or current assets which can be convert ed into cash within
an
account ing period.
The mutual ~ between fixed and current assets affects the quantum oG;'k of firm.
This risk affects the cost of differen t sources of finance. Thus, investm ent decisions are
s.
mainly of two types-c apital budgeti ng decisions and working capital decision
Sometim es, financia l mana~ also takes special investm ent decisions. These are called
non-rec urring decision s. These decision s facilitate mergers , reorgan isations and
liquidat ion.
ed
Capital budgeti ng decisions are quite significant for firms because they are concern
with such assets or projects which result in profits to the business over a long period.
t Under these decisions, financial manage r has to decide as to which of the differen
t
d
availabl e alternat ives is the best to invest in fixed assets. For this purpose , expecte
profit accruin g from that asset is evaluate d by using differen t techniqu es.
Efficien t manage ment of working capital is also quite importa nt for the business because
it affects profitab ility and liquidity of the firm. For the efficient nlanage ment of working
capital, financial manage r must maintain adequat e balance iti liquidity and profitability.
e
Profit.ability and liquidity have inverse relation ship. If business does not have adequat
working capital, risk will increase due to non-pay ment of short-tim e liabilities in time
and if current assets are more than required , it will reduce profitab ility and liquidity will
e
increase . This is called working capital manage ment. For efficient and effectiv
be
manage ment of working capital, inventor y, receivables and cash are require d to
manage d properly . . ·· ·

9
 Financial Management

... · ''(4)'
·
9 'DWl~e.l.·d •
u o
1·
.r'O icy
D ec1s10n:
• ; Determma
· ti'on of dividend policy is the res·p onsibility of
0 ,! : / fina"ncial m~tiagement. Income of the firm can be used in two ways:
(il
~
_.To distrib1,1te it ~s"'d ividend to the shareholders
I 'l ... . • ..:.· \ -~ 'I
and
(ii) ;To· retain it in business in the form of acs_umulated profits.
~ Hence, in the determination , of divid,e nd policy it is decided what part of profits be
distributed as dividends and what part be retained in the bus~ness. This d~sion is based
on prefe1~~ f shareholders and investment avenues available to the firm. Market
price of shares is affected by dividend policy.' Thus, dividend decision is related to
financing decision because dividend decision decides funds available from business
earnings.
(5) Financial Control: Financial control is a main constituent of financial management. Financial
- control helps pre~t deviations from the objectives. For the purposes of financi~ control
budgetarY.. control and cost c_o ntrol methods are employed)In the financial control,
standards of financial performance are determined first. Later, actual performance is
compared with the predetermined standards and deviations are calculated. Then, the
reasons for these deviations are ascertained and they are removed. If the deviations are
the result of deficiencies in policies, programmes and procedures, the policies, etc. are
corrected.
(6) Incidental Functions: These functions are of routine nature. Many of these functions
are complimentary to other managerial functions of financial management.
~ Safety of securities, insurance of assets and other valuable doc~rri.ents.
_. ~
- -
Administration of pension and -~e~fare plans.
~ Maintenance of records, preparation of reports and evaluation of financial
_ performance.
(~ To loo~ after cas~ceipts and ~yments.
~ To aaminister internal audit.

/ ·/ (vii)
- Jo
(vi) To e ~ b l i c financial relations.
open bank accounts and arrange for the deposit of finances.

) / Obj~ctives of Financial Manage~ent . .

,, b ·
· It 1s theldduty
b of
d manag:ement
• to clarify the ob1ect1ye5 of business so that the dep t
.:..,;;::::.:,t....::.:~~~u...~ ar men ta 1
o ~ectives co~ . e _e:erm1_ned accordingly. Financial objectives of a firm provide a concrete
framework w1th_p.~whoch optI~um finan~ial decisions can be made. The objectives should be such
that they enable the evaluat10n of efficiency and effectiveness of funds man d ••
· d di "d d d · · . . agement ec1s1ons,
mvestment an v1 en ec1S1ons, etc. Fman<;mg decisions help the management h' h
· ··
acav1t1es s h ou Jd b e un d erta ken an d wh'1ch po11C1es,
. .
should be followed The measure
· b' . wf 1c
· · h • -
firm should be to maximise t e economic welfare of its shareholders Acco d'
=---- · mam o !]ecuve o any
th
• · d · r mg1y, ere are two
approaches 1n this regar . ·

-(I) Profit Maximisation Approach

~ Wealth Maximisation Approach

10
,·, ,. 1 Nature and Scope of Financial...
·' • (1) Profit Maximisation A
pproach
Profit maximisation is
a firm should unde 1'l k J used as a stand;n'd of finanring dt'fisions. According to this approach,
a ea 1those · · · - --~
reduce its profits"\'} • b ' -:-- acu,·,t1es whirh add to its 1wnfi1s and diminate all or hers· w I11c·l
1
~ :..I us O ~t"Ct.n·es l · I t· 1 - - - ~ d d
im-estment. should . •• ug' tg \ls the foct that all the cledsions- f111 ;_m,!j11g, d1v1pen an
su 1t m proht 1
re
given ·m f:avour o f pro fi1t
• • . · • ··
maximisation approach: naxmnsatton. Followmg arguments are

(i) Profit is a Yardstick Or fl• .· . . . . . .

GU be ·rr
eva uah.· d. ·
e Ktt.>n<·v on the bmns of wl11r h ero nomll' effinency of a business
· · ·
1 .
~ ) It helps in eflicient · ll . d .. .
.,,,..,,- . . ,\ oc1t1on an uttlt~atmn of the scarre means because resources are
app11ed to such \t ses on
- , l • -:-:- ·
y w 11c11 max11111se the profits,)·
(iii) The rate of ret . . ---.
~ urn on capital employed 1s considered the best measurement of the
' profits.
-----
(iY) Pro~t acts as moti\ator whid1 l~elps the business organisation in becoming more
effiaent through hard work.
(Y) By ma.mnising profits, social and economic welfare is also maximised.
" t,i) EYe1?- business has limited ca~~, tl;erefore, its efficient use is measured in terms of
maXJ.IUum profits. · ·
However, the profit maumisation approach has been criticised on various counts:
(i) Ambigui~. One of the major limitations of the profit maximisation approach in actual
practice is that it is ambiguous. Profit can be expressec;Lin;\larigp&;[9rms. Different
people have different meanings of the tern{ 'profit' e.g., it can be short-term or
long-term. It can be total profit Qr rate of profit. Similarly, profit can be before tax profit
or after tax profit. It can be gross profit or .net pr?fit. In the same manner, it can be a rate
of return on capital employed or total assets or shareholders funds. Now the question
arises, which profits be maximised under profit maximisation approach. Sometimes,
firms increase their profits by reducing expenditure on machinery but it reduces the
productivity of business in the long run. ·
(ii) Time \talue of Money: Profit maximisation approach is.also criticised because it ignores
the time value a£roaney i.e., under this approach incm;ne of differen~ years get equal
weight. But, in fact, the value of rup~e tod~y will be·gx:eater as compared to the value of
rupee receivable after one ytai In the same manner, the value ofim.qme received in the
first year will be greater ~om that ~hich ~ be re~eive~ in thi later years e.g.> The
profits of two different projects are:

Year Project I Project II

1 5,000 -
2 10,000 . 10,000
3 5,000·_ 10,000
.
Both the projects have a total earning of, 20,000 in 3 years. And according to the profit
maximisation approach, both will be considered equally profitable. But Project I has
greater profits in the initial years of the project and therefore, is more profitable in

11
 Financial Management
. . 'tial years can be reinvested and
.. ed in the mt
terms of value ?f iHcome. T he pro ft ts earn
more profits can be earn ed . . . fit maximisation appro· ·h
(1·1·1·) Ri sk Factor: Another imnortant reaso ,, for critic1s111g the pro . bl . f ac
. . ty of income !recetva em uture
• -- .. r • r uncertain
is that it ignores t·isk factor. T he certamty O • k d low uncertainty reduces the risk.
. -------- . . . 1cre ases ns an
11 . h .
can be lugh or low. 1ltgh unce rtamt y · ' b . as compared to htg mcome with
. . . . sidered e tter .
Less m come with more cerlamty is con . ach does not pay any attentton to
greater uncert aint y. But th e pm fitt max imisatton '- appro"
this certainty. J d
significant for so e . tra ers· and
· · · . roach was more
T hus, pro fi1t maxumsatton app c . • ·tal is invested in business they
1
1 · when persona 1cap 1 '
p artnership firms because at t e tnne . . . fit But today ownership and
. ', l . . t by maxnmsmg pro I s.
want to increase t 1en asse s . f ore and more corporations
d d to establishment o m ·
management have separate ue . Capital in companies ·
. c.essiona 1 managers. 1s
Companies are now manage d b Y pi 011 • • • • 'd
• d b . h O lders financial mst1tut1ons, etc. Best es these
provided by shareholders, e entm e ' I · t t d · h
mployees ' etc · are . a so m eres e m .t e
parties creditors customers, governmen t e
operauon ·
.' o fth e b,usmess. o ne o f the maior :., responsibilities ofbusmess h management
• • ts to
.
co-ord mate th e con fl'1c0· ng m · terests of all these parties. In sue a s1tuauon,
. : .profit
· · · approac h d oes no t a ppear proper and practicable for financial dec1S1ons.
maxunisauon
• (2) Wealth Maximisation Approach
The wealth maximisation approach has been recognised for th.e ~v~luation of performance of
a b usiness undertaking. It is also known as value maximisation or maximis~~ion of ~et .present
worth. According to this approath,-financial management should take such dec1s10ns which mcrease
net present value of the firm. And it should not undertake any ·activity which decreases net present
value. This approach eliminates all the three basic criticisms of the profit maximisation approach. As
the value of an asset is considered from the ·viewpoint of the profits accruing from it, in the same
manner, the evaluation of an activity depends on the profits arising from it. Therefore, all the three
main decisions of a financial manager financing decision, investment decision and dividend decision
affect net present value of the firm. Net present worth, gross present worth and the initial capital
investment are different from each other. If the gross present worth is more than the initial
investment, the value of firm will increase and if the gross present worth is less than the amount of
capital invested, the value of the firm will decrease. In other words,the greater the amount of the net
present value, the greater will be the value of the firm and more it will be in the interests of
shareholders. When the value of firm increases, the market price of equity shares also increases·.
Therefore, increase in the market price of shares is considered a sign ofincrease in the value of firm.
Thus, the maximisation of net present worth means the maximisation of the market price of
shares. Net present worth can be calculated with the help of following equation. '\ · "'
A1 A2 A F· v . ·\
W ---+ 2+.............. + n -C ;J
(l+k) (l+k) (l+k)° .,\ , ·, · \ \·'f
=! At -C i \,, t. l..
t-1 (I+ kf
where, W = Net Present Worth.

12
 1 Nature and Scope of Financial .. .

A,' A2 ............. A" -- Stream of expected cash be nefi ts fro m a course of ac t'10 n over a
period of time. \

K = Appropr iate dis

.. cou nt rale lo meas ure risk and timing.
C = hut1al outlay to a cqmre · 1 .
t Ult asset or pursue the course of action.
· or the course of act.mn shou l<l be taken. On tI1e oth er h an d , 1·r W
.. ·sion
. . ' th· e d eci
If. Wis positive
·s neo·auve, the dec1s1ou or cou1.se o (' action .
1 o should not be ta ken.
If W is zero ' it would 1u e._m . tlmt 1t· does not ad d or reduce th e prese nt va Jue o f t he asse t •

. T he ~:ealth maximisa tion approach is considere d good for the companies in present
situau~n. Tlus ap~roach gives due considera lion to the time value of expected income receivable
over differe nt pen ods ~f time. Under this approach , risk or uncertainty is analysed with the help of
interest rate. If uncertam ty and time period are greater, higher rate ofinterest/discoun t will be used
to calculate present value of the expected future cash benefits, whereas the interest/discount
rate
will be lower for tl~e projects with low risk a~~j' ~ncertainty~·Besides, this approach .uses cash flows
instead of accounu ng profits which removes the ambiguity associated with the term 'profit'.
On the basis of the above explanat ion, we can conclude that wealth maximisation approach is
better than profit maximisation approach .

r Cope of Financial Manageme~t _____ __ _ _

/ In order to unde~sta nd the duties and responsibilities offinancial managem ent, it is desirable
to study the subject matter of finance function. With the changing business environm ent, the scope
of finance function has widened to include more contents in its fold. Before the beginnin g of the
20th century, finance was consider ed as part of Economics. Finance, from the beginnin g of
20th century, was used to be studied as an academic discipline ap,d capital market being emphasised
more. Later, due to technical improvement, large scale industries were established and small
businesses were amalgam ated. It necessitated more finance. But, at that time external finance was
given more importan ce and internal managem ent of funds was ignored. But after the depression in
1930, the liquidity of funds was more emphasised because the firms faced difficulties to raise funds
for day to day operation s of the business from banks and financial institutions. Later, the need was
felt for analysis of cash flows, financial planning, financial control, capital budgetin g, cash
budgeting, profit planning , pricing-policy, performance appraisal, managem ent of working capital,
determination of cost of different sources of finance and day to __~.ay -~nancial managem ent of
business.
According to the traditional approach, the scope of finance function was limited to the
arrangem ent of necessary funds and administration of related functions for business. In larger
perspective, besides the procurem ent of funds, the effective utilisation of funds was also included in
the scope of financial managem ent. Therefor e, it is the duty of the financial managem ent to see that
the funds are being utilised properly and rationally along with their procurem ent. The original
approach to finance was descriptive but now the nature of financial managem ent has become
analytical which enables to take some importan t decisions on different financial aspects. Therefor e, .
financial managem ent has become a continuous administrative process. Earlier, the managem ent
was concerne d only the managem ent of funds at the time of promotio n, absorption, liquidation,
reorganization only, but now the routine financial administration is also covered under financial
management.
13
 111)/fi• .,.

Financial Management

■ Relationship of Finance to other Activities

F" • · human resources, statistics, etc
inance is closely rela ted to accounting, economteS, ·
• II , t . nd present financial data. There{;
Tlle 1nam function of accounting is to co cc ,l
· h b . . 0 re,
· . r.
accountmg process of a business 1wovidcs a lot o 1· ,,nanct,t ,. .·. I chta about t e usmess transaction "
s 1 or
• b 1· .•, J process are not accurate, the deci s10·
ma ki ng financtal decisions. lfthe data presented Y manci,i . . . . . ns
• .
b ase d on them will also be wrong. Accountm g reco1·d s vai .·10 us '•tct1v1t1es of finance function. Fma •
. naa)
management evaluates work performance on l I1e basis · O f-' uch data. Thus, accountmg provides
s . . . . raw
· . d fi 1 •• l nagement 1s a dec1s1on-makmg proc
material for the financial management an manoa ma ess.
Thus, it can be stated that accounting is a part of finance.
• and finance · te d · Economics is the study of the behaviou f
Econonucs are also close 1y assocm ro
mankind which helps fulfil his needs through the product~on, ~x~~ange. a nd use of goods and
sen'ices. Finance can be said to be the study of those economic acuviues which ca~ be e~~ressed in
money. Thus finance is a use of economics. The persons who want to take financial decisions must
have~ good knowledge of economics. In economics, we study demand and supply, coS t and profits,
production, consumption, banking and economic policies of Government. The study of all these
aspects provides guidelines for economic decisions and helps the financial management forecast the
financial requirements. Marketing officers forecast sales. Then the financial management starts
analysing these forecasts whether the estimated sales can be made with the present funds or not. If
not, how much more funds will be needed?
The management of human resources studies the investment aspect in human-beings. Firms
have to decide, whether the training to workers, etc. should be imparted or not.
In the present times, finance has become a complex subject. To solve the financial problems,
quantitative methods are used now. Therefore, in order to arrive at correct and appropriate
decision, knowledge of statistical techniques is must. For the solution of various financial problems,
there is a need to establish mutual relation among the various data. It is possible only through
statistics. Cash and inventory management, forecast of financial needs, credit policy decision all are
based on the advanced techniques of statistics.
Finance is also related to law. Any decision regarding financial policy should be in line with the
laws of the country. .

■ Organisation of Finance Function

The organisation of finance function implies the division and classification of functions
to
relating to £inane~ because financial decisions are of utmost -significance.. firms. Therefore, to
perform the functions of finance, we need a sound and effiia·ent orgamsauon.
· ·
Although in case of companies, the main responsibi'lity top e,-£'.,orm fi nance fi · rests w1·th
uncuon
the top management, yet the top management (Board of Directors) c.
· b d' . , ,or convenience, can d e 1egate
-
its powers to. any su or mate executive which is known as n· •a1
. . . irector F'mance, Chief . Fmanc1
.
Controller, Fmanc1al Manager or Vice President of Finance Be 'd • . . d
. _c. th fi fu . : · si es, it 1s mamly the duty of Boar
of Directors to penorm e mance nct1ons. There are various . . . .
. . . d . . reasons to assign the respons1b111ty
to the Board of Directors. Fmancmg ec1S1ons are quite signifi
. . . a: • cant c.,or t h e survival.
of firm T h e
growth and expansion of busmess 1s auected by financial policies. The loa . . · he
business depends upon the financial operations. n paymg capacity oft

14
 1 Nature and Scope of Financial...

The organisation oiT . r. . • • c1·cc f

. · lll.lnce 1 un ct1011 is not similar in all businesses, but 1t 1s iu:erent rom one
busmess to another The . . · • . . h ·
. · mgLmisr1t1on orhnance fun ction for a business depends on t e nature, size,
financial system and other cl1.,u .actcnst . . . b . t ffi r i's
. tcs of a {inn. For a small usmess, no separa e o ice
appomted for the finance 1· •.• . . . • c. h c. t' f
. . ' unction . Owner of th e bwuncss h1rmielf looks aiter t e 1unc 10ns 0
• , • · f h b ud ge t an d
finance mdudmg the est1·Hhl. 1ton •
of' l'cqu1rc111cnt s of fund s, preparation o cas
arrangement of the requir d 1r. Is, exa111111atton . . . · f
. . . e unc of all receipts and payments, preparat10n o
cred•~ pohcy, co1lectmg debtors, etc. With the increase in th e size of business, specialists were
th
app~mte~ for e_finance function and the decentralisation of the finance function began. For a
medmm s1 zed bu_smess, the responsibility of the finance function is given to a separate officer who is
known as financial controlle1~ finance manager, deputy chairman (finance), finance executive or
treasurer.

In a large sized company, the finance function has become more difficult and complex and
the position. of ~nancial manager has become very important. He is the member of top management
of an orgamsation. For such large organisations, it is not possible for a finance manager to perform
all the finance functions or to co-ordinate with the various departments. Therefore, finance and
financial control are separated and allocated to two different sub-departments. For the 'finance'
sub-department, treasurer is appointed and for the 'financial control' sub department, financial
controller is appointed. Each of them has various sub-units under it.
Financial planning and financial control are quite significant for a large sized organisation.
Therefore, a finance committee is established between the Board of Directors and Managing
Director. It includes the financial manger, representatives of the directors and departmental heads
of various departments. Managing Director is the chairman of the committee. Its main function is to
advise the Board of Directors on financial planning and financial control and co-ordinate the
activities of vario~s departments. The following Fig. 1 explains the organisation of finance function.
From the Fig. 1 it is dear that treasurer and financial controller work under finance manager.
Financial Manager is responsible to the Managing Director for his actions. ·

Board of Directors

Managing Director
•.' . - ·····•
. .....
! .. , .. '.

I p>.lniioi j . r F1n.tac p,1•.lng I

Prod!clion
Mana!l"r_.i L . M~••Y•!•. , _ ~anr~_j L. MIi~ ,I

~--·-·•~.
+l
'
;- .Treasurer
- ~..
'--·· ,... .+.
. ; Banking I l Cash :_
o
lr··'c· o··n
1 ;..., ,.-, -l,
· -tro
-A

t' -Relations
- .. . .I.. !•..Magt.
( .. . ,
~
!

r·- ·cori>orate·-~-l :'Arinuai 1

t~-
1. •
l Accounting & Cost ·•
:...... .... , •. ··- . . ... ..,
~
i Report;
' .. .... ·
~... - .: .. , .-a r.·_. • • '1 • • -·

Fig. I
15
r
••uwllliifil7/J:lf1ll,1i[i/Ii.:;J,
•,Z:T!·;"!':~ ,. --■rlllli:~'·7,;,11/,Wi'NliJ.ik,iii,
,:!,a lhJ71/1111Jjk;IINli:IMl/llaJ/'11#«

Financial Management

Ti· . . . . . . h it· utiLisation, investment,

easm et perf'orms Lhe functions of procure ment. of essenttal func1s, t e
1
nt t
bank' ·l . . . . , . nsion, manageme , e c.
mg, cas 1 manage m e nt , cred 11 mana gem e nt , d1v1dend dr stnbuuon , pe d' • b d t
Fin· . 1 . . . . , nting au itmg, u ge ,
ancia controller 1s responsible for lJ'eneral account111 g, cost ctcco u ' . •
• • !"t f fin ancta 1 manager 1s
teportmg a nd preparing tina ndal stat e m e nt , ct.c. In lndm , the function °
• •
d fi ·
. . . ftreasurer an manc1a1
given to the secretary in most of t h e cotnJ)ani cs. H e performs the fun ctio ns O d . .c •
, data an tniormat10ns
controller along with the routine functions or secretary. I le co ll ects neces 5,try
a nd sends them to the Managing Director.
,~
■ Functions of the Chief Financial Manager"
1
manag·er• 1•s the top officer of finanre d epartmen t · In America he is known . as
• •
C l11effinanc1al fi
O 11
Vice-president fi n ance and in India h e is cal.led Chief Pinancial Controller. He performs owmg
functions.
Financial Planning: He determines the capital structure and prepares fina n cial plan.
Procurement of Funds: Financial manager makes the necessary funds available from -
different sources.
Co-ordination: Financial manager establishes co-ordination among the financial needs

-
of various departments. He is a member of finance committee.
Control: Financi~ manager examines whether the work is being performed as per
.

pre-determined standards or not. He gets the reports prepared, controls the costs and
analyses profits.
Business Forecasting: Financial manager evaluates the effects of all national,

~)
.._. -
international, economic, social and political events on industry and company.
Miscellaneous Functions: It includes the management of assets, management of
inventory, arrangement of data and management of bank deposits, etc.

■ Functions of Treasurer
The following are the functions of treasurer.
(I) Provisions of Finance: It includes the estimation of funds necessary for procurement,
preparing programmes and implementing them, establishing relation among various
sources of funds, issuing the securities and managing debt, ·etc.
(2) Banking ~n~~~n: It inclu~es opening. bank accounts, depositing cash, payment of
company liab1liues, accountmg cash receipts & payments, responsibility for transacting
actual assets, etc.
(3) Custody: The treasurer is the custodian of funds and securities.
(4) Management of credit and collection: The treasurer determines credit risk of
customers and arranges for collection.
(5) Investments: It involves the investment of surplus funds.
(6) Insurance: The treasurer signs the cheques, agreements and ~ther lett f
• d ers o company;
forecasts cash receipts an payments; pays property taxes and folio
ws government
regulations._

l 16
 1 Nature and Scope of Financial. ..

• Functions of Controller
The contr oller perfo r . r. ll . .
t11e 10 owmg functions:
ms
II · · · · wh'ICh are
(1) Plann ing·
. · Th e contr o er prepa res plan for controlUng the busmess acttv1t1es
the mam cons• :t f . . prope r arran geme nt regar_d'mg
. . u uents o · mana geme nt and m which
sting and expen diture
prnfit ~la~n mg, capital expe'nditure planning, sales foreca
budg eting 1s made.
and arran geme nts for
(2) Acc~unting: Contr oller determines the accounting system
ial statements.
costmg and mana geme nt accounting systems and prepa res financ
(3) Auditing: Contr oller Manages internal auditing.
s needs and presents
(4) Reports: Contr oller prepa res financial repor ts according to variou
deviation between the
them to the mana gers. He advises the mana geme nt to correct the
stand ard perfo rman ce and actual performance.
(5) Government Reporting: Controller sends essential informations to the Government by
obeying the legal requirements.
tax liability.
(6) Tax Administration: Contr oller prepa res statement on
·of economic and social
(7) Econ omic Appraisal: He determines· and analyses the effect .
factOFs on business.
\
,
~inp orta nce of Financial Management
growth_ of corporations in
~ Financial mana geme nt has special significance in the origin and L•
modern times.
(1) Significant part of Busin ess Management: Financial
mana geme nt is an impo rtant
ess helps perfo rm each
const ituent of business management. The specialisation in busin
activities, mark eting
activity in a prope r manner. As production manager in produ ction
activities and perso nnel
mana ger in selling activities, purchase manager in purch ase
same manner, financial
mana ger in selection and training activities is specialised, in the
any depar tmen t canno t
mana ger is specialised in financial operations. The activities of
depar tment s have their
be comp leted witho ut adequ ate finance. The activities of all
depar tment s and plans
effect on finance. Financial mana ger co-ordinates the various·
and controls their activities.
of business depen d upon
(2) Liquidity and Profitability: The profitability and liquidity
consequently liabilities
financial mana geme nt..Decrease in liquidity increases risk and
on capital invested
canno t be paid in time. Due to decrease in profitability, the return
r balance betwe en
decreases. There fore, financial mana geme nt maintains prope
liquidity and profitability.
by his different financial
(3) Value of Firm: Financial mana ger affects the value of firm
decisions and divid end
decisions. The decisions include financing decisions, investment
decisions.
ons are assigned to the
(4) Centr alised Nature: In business, the routine financial functi
the main const ituent of
subor dinat e officers in management. But financial mana ger is
policies and financial
top mana geme nt. The determination of financial objectives and
level, the benefits of
plann ing, financial control and co-ordination are done at the top
which are given to all departments.
17
 Financial Management

h ners of business. Because of their

(5) Benefits to Shareholders: Shareholders ~re t e ow t of business directly. Th
greater nu mber, they cannot partici pate •.0 th e mana~em~ n holders have knowledge
business is rat her ma naged by Board of Otrectors. If t e s ~~e sition and profitabilite
of fm ancial management, they ca n fo irly analyse the fi nancia po Y
and know whether their capital is being properly used or not. .
d Of fi ial managem ent, the mvestors can
(6) Be~efits to Investors: With the knowle ge mane an or not. They didn't have
decide whether they should purchase the shares of a comp Y
to depend on brokers, etc.
(7) Other Benefits: l ,he knowledge o f fimanCia · 1 ma nagemen t principle s helps the
..
·
underwn ters protect themselve s from unnecessary losses of wrong underwn tmg
.. . ·
Financial institution s and commercial banks can invest in good secunues . Economists
can evaluate the performance of different projects, and students can also undertak e
research work.
,
.■ Recent Developments in Financial Management
/ ' Before liberalisation and financial reforms, the financial manager of a firm worked in a highly
regulated financial framewor k and had limited freedom in laying down financial policies. After
liberealisation this role in financial managem ent has changed in many ways. Subjects of financial
engineering and Behavioural Finance emerged, which made the role of financial manager more
challenging. More sofiticated techniques were developed in the area of risk managem ent, which also
made the role of Financial manager challenging. However, the importan t changes have been as
follows:
(i) The concept of Book Building regarding Issue of securities by the Compani es has been
introduced.
(ii) Foreign Exchange Management Act has been liberalised.
-
(iii) More stress was put on financial inclusion.
(iv) The scope of Pvt. investment has increased because of relaxation
in industria l licensing. _
(v) Companies have freedom in determini ng and pricing
the securities issued by them.
(vi) More financial products like factoring, fore
pointing, venture capital fund, private and
equity fund came into existence.
(vii) The cash credit system
has been largely replaced by a system of working capital loans.
(viii) Banking industry is
transforming from interest based income to fee based income.
(ix) ~x.change rates
as w~ll as interest rate have become market driven instead administe red
exchange rate and interest rate'.
(x) The rate of financial manager has changed because of new
. . . 'd 1·
FIi, and foreign portfoho mvestment. gm e mes re1ated to FDI
'
(xi) Role of financial manager also has changed because of m li
• •• ore comp cated merger and
acqms1tJons.
(xii) The financial manager has to keep pace with changed sc .·. · fb . ·. .
. k' enano O usmess 1.e., 'Bnck to
CIJC •

(xiii) The role of electronic cash payment system is expandin g.

18
 ;p• µ "'• _,
1 Nature and Scope of Financial ...

· d d
(xiv) Derivaties inst rum ents sue11 as option and future have been mtro uce ·
·· .
· ery of secunues
· · s has been replaced by actual deliv
(xv) . Dematerlisation 0 f secuntJe
th mor e
financial man ager in Indi a has became u·t·o
In view of e above changes the functions of . • f I b J pe 1 n ,
1·mpo. rtant, com plex and de man d'mg. He has to work m the env iron men t o g o a· com
. • l changes, ch anges mt e t wo Iaws
· . ,est rates market, technologica
arid mtet
h
Olaule foreign exch ang e ·
v
and shareholders dem and .

r ,~
n ,
~Qll@~th~~~ ·
--0• ~--
--t.J.on
----Wha --
is the mea ----of --
--ning tion--
func--
nce --
fina-- --lain--
? Exp --diffe
the appr--
----
--rent oach --nce
--·es--to fina
· ·
func .
uss its objectives.
ti. Wha t do you mea n by finance function? Disc
the natu re and scope of finance function.
3.tV 'Wh at is mea nt by finance function? Explain
changed and keeps changing alongwith the
4. "Th e Con cept of finance function has
ness man agem ent activity". Elucidate.
evolution of the con tent of finance as a busi
ent? EKplain its ~nc tion s. Differentiate
Y Wha t do you mea n by financial managem
decisions.
-- ·· between financing decisions and financial
of finance function? Explain the functions
6. Wha t do you und erst and by the organisation
of trea sure r and controller.
cial man agem ent and discuss the impact
7. Critically exam ine the mod ern concept of finan
e of the firm.
of financial decisions on the growth and valu
age~ ent d~cisions that a business firm make?
8. Wh at are the maj or type~ of financial man
Describe each.
e maximisation as crite ria for financial
9. Con tras t prof it maximisation and valu
man agem ent decisions.
10. "Th e wealth maximisation objective
provides an operationally app ropr iate decision
criterion". Comment.
What should be its basic objectives in a
What do you mea n by Financial Management?
corp orat e enterprise? l
uss objectives and func tion s of Fina ncia
12. Define Fina ncia l Man agem ent. Disc
Management. ,
· bett~r than profit maximisation objective?
13. How is wealth maximisation obJective
~ ,
Explain.
merate the functions of a Chi ef Financial
14. Wha t do you mea n by financ_e function? Enu .
ples.
Man ager and shQw with the help of suitable exam
15. What are the major types of financial decision
a
s that business firm make? Describe
value of the firm?
each. Also state ·how such decisions influence
." Elucidate this stat eme nt with suit able
16. "F~nance is the life blood of business
illustrations.
. Ill
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