Introduction To Finance: Finance Is A Field That Deals With The Study of Investments. It Includes The Dynamics

Introduction to Finance:
Finance is a field that deals with the study of investments. It includes the dynamics
of assets and liabilities over time under conditions of different degrees of uncertainty and risk.
Finance can also be defined as the science of money management. Finance aims to price
assets based on their risk level and their expected rate of return. Finance can be broken into
three sub-categories: public finance, corporate finance and personal finance.
Definition of Finance:
What is 'Finance'
Finance describes the management, creation and study of money, banking, credit, investments,
assets and liabilities that make up financial systems, as well as the study of those financial
instruments.
Definition to Financial Management:
The planning, directing, monitoring, organizing, and controlling of the monetary

resources of an organization.
Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement of funds in the most economic manner and employment of those
funds in the most optimum way.
Scope / Elements of Financial Management :
1. Financial Decisions
2. Investment Decisions
3. Dividend Decisions
Financial Decisions ( What will be the source of funds? )

Financial Decisions relate to the raising of funds from various resources. It depends on
the type of source ( debt or equity ), the period of financing, cost of financing and the returns
thereby.
Investment Decisions ( Where the funds will be invested? )

Investment Decisions includes investment in fixed assets ( known as capital budgeting ).
Investment in current assets ( working capital ) is also a part of investment decision.
Dividend Decisions ( What will happen to those earnings? )

The Finance Manager has to take a decision with regards to the net profit distribution.
Net profits are generally divided into two parts:
 The dividend for Shareholders:

Dividend and the rate of the dividend need to be decided.

 Retained Earnings:
Amount of retained profits has to be finalized which will depend upon expansion and
diversification plans of the enterprise.
Functions of Financial Mangement / Manager:

1. Estimation of Capital Requirement:
Estimation depends upon expected costs, profits, future programs and policies of
a firm. Estimation must be adequate, as it can increase the earning capacity of the firm.
2. Determination of Capital Composition:

It is based on long term-short term debt equity analysis. This will depend upon
the proportion of equity capital a company is processing and additional funds which have
to be raised from outside parties.
3. Choice of sources of funds:

Choice of funds depend upon the relative merits and demerits of each resource. Various
sources of funds are:
 Issue of shares and debentures
 Loans to be taken from banks and financial institutions
 Public deposits to be drawn, like in the form of bonds

4. Investment of Funds: Financial Manager has to decide to allocate funds into profitable
ventures so that there is safety on investment and regular returns are possible.
5. Disposal of surplus: It refers to the decisions on the net profits made about the
dividend declaration and retained earnings.
6. Management of cash: The Financial manager has to make decisions with regards to
cash management. It is required for many purposes like payment of wages and salaries,
bills, creditors, maintenance of stock, raw materials, etc.
7. Financial Control: Financial Manager not only has to plan, procure and utilize funds but
he also has to exercise control over finances. This can be done through many techniques like
ratio analysis, financial forecasting, cost and profit control, etc.
Objectives of Financial Management:

1. Wealth Maximization : The one of the most important objective of financial managers is to
maximize the value of shares of their shareholders.
2. Profit Maximization
3. Focus on stakeholders: Stakeholders are those entities who have invested in shares and the
interest of those people that a firm can’t ignore.
4. Estimation of capital requirement
5. Arranging of required funds
6. Optimum utilization of funds
7. Management of cash position or balance
8. Coordination with other functions or department

Introduction To Finance: Finance Is A Field That Deals With The Study of Investments. It Includes The Dynamics

Uploaded by

Copyright:

Available Formats

Introduction To Finance: Finance Is A Field That Deals With The Study of Investments. It Includes The Dynamics

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Introduction To Finance: Finance Is A Field That Deals With The Study of Investments. It Includes The Dynamics

Uploaded by

Copyright:

Available Formats

Introduction to Finance:

Definition to Financial Management:

The planning, directing, monitoring, organizing, and controlling of the monetary

Scope / Elements of Financial Management :

Financial Decisions ( What will be the source of funds? )

Investment Decisions ( Where the funds will be invested? )

Dividend Decisions ( What will happen to those earnings? )

 The dividend for Shareholders:

Functions of Financial Mangement / Manager:

2. Determination of Capital Composition:

3. Choice of sources of funds:

Objectives of Financial Management:

4. Estimation of capital requirement

5. Arranging of required funds

6. Optimum utilization of funds

7. Management of cash position or balance

8. Coordination with other functions or department

You might also like