Financial Management Functional Areas PDF

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Financial management is no longer limited to the raising and allocating of funds. Financial institutions, such as stock exchanges and capital markets, are also studied since they have an impact on securities underwriting and business advertising. Company finance was once thought to be the most impor...

Description

FINANCIAL MANAGEMENT FUNCTIONAL AREAS Financial management is no longer limited to the raising and allocating of funds. Financial institutions, such as stock exchanges and capital markets, are also studied since they have an impact on securities underwriting and business advertising. Company finance was once thought to be the most important aspect of financial management. Capital structure, dividend policies, profit planning and control, and depreciation strategies have all been added to the subject's scope. Financial analysis tools such as financial statement analysis, fund statements, and ratio analysis are also useful in determining the financial strength of a company. The following are some of the functional areas covered in financial management:

Identifying your financial requirements. A finance manager's job is to ensure that the company's financial needs are met. He should do it by determining the company's financial requirements. Funds are required to cover advertising costs, as well as fixed and working capital requirements. The amount of fixed assets required is determined by the industry. A manufacturing company will need to invest in fixed assets more than a trade company. The amount of working capital required is determined by the size of the business. The

greater the scope of operations, the greater the requirement for working capital. A faulty evaluation of financial requirements could put a company's survival in jeopardy.

Selecting Funding Sources. Funding may be provided from a variety of sources. A company may use share capital and debentures to raise funds. It is possible that financial firms will be asked to contribute long-term funds. Cash credit or overdraft facilities from commercial banks may be used to meet working capital requirements. When seeking various sources, a finance manager must use extreme caution. Bank terms and conditions may be unfavourable to the business. Due to a lack of suitable securities or its reputation, a small corporation may have difficulty raising capital. The choice of a good source of financing will have an impact on the company's profitability. This is a choice that should be made with extreme caution.

Financial Analysis and Interpretation are the third and last steps in the process. A finance manager's job entails analysing and interpreting financial statements. He should be aware of the profitability. The concern's liquidity situation, as well as its short- and long-term financial status. A number of ratios must be calculated for this purpose. To arrive at particular

conclusions, it is also necessary to interpret various ratios. The field of financial analysis and interpretation has grown in importance in recent years.

Profit-by-Volume Analysis. Profit planning requires the use of a cost-volume profit analysis. It provides answers to problems such as what is the relationship between cost and volume, when will a firm be able to recover its costs, and how much should a firm produce to make targeted profits. To comprehend the cost-volume-profit link, one must first comprehend cost behaviour. Fixed costs, variable costs, and semi-variable costs are the three types of expenses. Regardless of output changes, fixed cests stay constant. Fixed costs are unaffected by increases or decreases in manufacturing volume. Variable costs, on the other hand, fluctuate in lockstep with changes in production. Semi-variable costs are those that remain constant for a while before becoming variable for a brief time. These expenses change in proportion to changes in output, but not in the same way. A financial manager's primary concern will be to recoup all costs. He will strive to reach break-even point as soon as possible. It's a no-profit, no-loss situation. Any production that exceeds the break-even point will result in a profit for the company. It's also possible to figure out how many sales are required to make a specific profit. This analysis is quite useful in determining the output or sales

volume. Understanding cost-volume profit analysis is critical for making significant production and profit decisions.

Capital Budgeting The process of deciding on capital expenditures is known as capital budgeting. It is an expense for which the benefits are expected to be received over a longer period of time than a year. It is a cost incurred for the purpose of purchasing or enhancing fixed assets, the benefits of which are expected to be realised over a period of time. Any organization's capital budgeting considerations are critical. Any poor investment selection could jeopardise the company's continued existence. The allocation of available resources to alternative ideas is at the heart of capital budgeting. The profitability of the potential investment is a critical aspect that determines capital budgeting decisions. Knowledge of capital budgeting procedures is required to make accurate capital budgeting decisions. Capital budgeting decisions can be made using a variety of methodologies, including the payback period method, rate of return method, net present value method, internal rate of return method, and profitability index method.

Working capital management. Working capital is a company's lifeblood and nerve centre. Working capital is required to keep a business running smoothly, much as blood circulation is required to keep the human body alive. Without a sufficient quantity of working cash, no business can succeed. Working capital is the portion of a company's capital that is used to finance short-term or current assets like cash, receivables, and inventory. It is critical to keep these assets at the right level. The quantity of such assets must be determined by the finance manager. Cash is needed to meet day-to-day demands and to acquire inventory, among other things. Cash shortages can have a negative impact on a company's reputation. The management of receivables is linked to the level of production and sales. It may be necessary to provide greater credit facilities in order to increase sales. Even if sales increase, the danger of bad debts and the costs associated with them may have to be weighed against the benefits. Inventory control is another crucial aspect of working capital management. Inadequate results in money being blocked in stocks, higher costs in keeping inventories, and, on the other hand, inventory may cause delays, stoppals, or work stoppages. Excessive inaintaining, for example. The management of working capital is a key aspect of financial management.

Profit Control and Planning The financial manager's primary role is profit planning and control. Profit maximisation is often seen as a critical goal for any company. Profit is often employed as a metric for measuring managerial success. The volume of revenue and expenditure determines profit. Sales, investments in outside assets, and other sources of income can all generate revenue. Manufacturing costs, trade costs, office and administrative costs, marketing and distribution costs, and finance charges are all possible expenses. Profit is determined by the difference between revenue and expenditure. Profit planning and control have a direct impact on dividend declarations, surplus creation, taxation, and other financial decisions. Profit planning and control employs tools such as break-even analysis and cost-volume profit.

Policy on Dividends Dividends are payments provided to shareholders as a result of investments made by 6. Divide the company's stock among them. Investors want the highest possible return on their investments, while management wants to keep profits for future financing. In the best interests of shareholders and the company, these opposing goals will have to be reconciled. The company should pay out a reasonable amount in dividends to its shareholders while keeping the rest for growth and survival. A dividend policy is influenced by a

variety of factors, including the size and trend of earnings, the desire and type of shareholders, the company's future needs, the government's economic policy, and taxation policy, among others. Because the interests of shareholders and the needs of the company are directly related, dividend policy is an important area of financial management....