Chapter 3 - NATURE OF FINANCIAL MANAGEMENT What is finance Finance can be defined as he art and science of managing money. Virtually all individuals and organizations earn or raise money and spend or invest money. Finance is concerned with the process, institutions, markets and instruments involved in the transfer of money among individuals, business and governments. Nature of Financial Management Financial Management as an academic discipline has undergone fundamental changes as regard its scope and coverage. In the earlier years, it was treated synonymously with the raising of funds. In the later years, its broader scope, included in addition to procurement of funds, efficient use of resources. Scope of Financial Management …show more content…
iii) Profit maximization, as an objective is too narrow. It fails to take into account the social considerations as also the obligations to various interests of workers, consumers, society as well as ethical trade practices. Further, most business leaders believe that adoption of ethical standards strengthen their competitive positions. iv) Profits do not necessarily result in cash flows available to the stockholder. Owners receive cash flow in the form of either cash dividends paid to them or proceeds from selling their shares for a higher price than paid initially. Modern Approach - The alternative to profit maximization is wealth maximization. This is also known as Value maximization or Net Present Worth maximization. Value is represented by the market price of the company’s equity shares. Prices in the share market at a given point of time, are the result of many factors like general economic outlook, particular outlook if the companies under consideration, technical factors and even mass psychology. However taken on a long-term basis, the share market prices of a company’s shares do reflect the value, which the various parties put on a company. Normally, the value is a function of two factors (i) The likely rate of earnings per share of a company (EPS) and (ii) The capitalization rate EPS are calculated by dividing the periods total earnings available for the firm’s common shares by
Financial Management is an important aspect of how a business operates efficiently. The way that the finances are controlled can determine how successful the company is. The finances of a business allows for the growth of the company. The five practices of financial management: capital structure decision, investment appraisal techniques, dividend policy, working capital management and financial performance assessment are critical when assessing a company. The performance of a company plays a key role on how successful the company is on meeting goals. There are different strategies and tools that a company can implement and if they are used to effectively the company can meet their goals. If a company has good finances, a good
Financial Management: “The process for and the analysis of making financial decisions in the business context.” (Cornett, Adair, & Nofsinger, 2016, p. 5).
In another section, the data includes basic and diluted earnings per common share, basic and diluted weighted average number of common share outstanding.
The finance function and its relation to other decision-making areas in the firm; the study of theory and techniques in acquisition and allocation of financial resources from an internal management perspective.
The key role of finance in any business is to manage money; whether it be raising capital through share capital and bank loans, raising credit (short-term capital), or handling the costs of the business. Without finance, a business would not function, as quoted by (Griffin, 2015); ‘Money is the lifeblood of a business and finance is the nerve center’.
* Finance - The “science of funds management.” Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money, risk and how they are interrelated. Finance also deals with how money is spent and budgeted.
"First and foremost, financial management is a decision science. Whereas accounting provides decision makers with a rational means by which to budget for and measure a business’s financial performance, financial management provides the theory, concepts, and tools necessary to make better decisions” (Gapenski, 2007).
* Finance is the study of how people and businesses evaluate investments and raise capital to fund them. Our interpretation of an investment is quite broad.
Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds for an organization. It means applying general management principles to financial resources of the enterprise or organization. The scope of financial management can cut across a wide range of the organizations departments and can involve investment decisions including investment in fixed assets. Investment in current assets is also a part of investment decisions called working capital decisions. Financial management also involves making financial decisions. These relate to the raising of finance from various resources which will depend upon decision on type of
EPS is calculated as a ratio of earnings (Net Income – Preferred Dividends) to the average number of outstanding
Even though financial management "is a broader concept than accounting", the idea of financial management is more than just accounting for where money is spent, it is based on the analyzation of organization's economic
EPS is the amount of earnings per each outstanding share of a company 's stock. The EPS formula does not include preferred dividend for categories outside of continued operations and net income. Earnings per share for continuing operations and net income are more complicated in that any preferred dividends are removed from net income before calculating EPS. (I.M. Pandey, n.d).
First of all, financial management is the efficient and effective control of money. Giving students the option on financial management in high school could prepare them for the nasty world
Finance, understanding how it affects the smallest business to the largest organization, is the origin to financial success in businesses. According to Gitman (2006), finance is the art and science of managing money. Virtually every individual business and large organization, Be the organization for profit or non-profit, depends on the rates at which these entities earn, or raise money, and the rate at which they spend or invest these earned monies. Understanding these financial processes will enable the financial manager, or even the non-financial managers to more effectively interact with financial personnel, processes, and procedures.
Finance is the study of applying specific value to things we own, services we use and decisions we make. Financial management is the process for and the analysis of making financial decisions in the business context. The major subareas of finance are investments, financial management, financial institutions, market, and international finance. Risk is a potential future negative impact to value and or cash flow. It is often discussed in terms of probability of loss and the expected magnitude of the loss.