hello friends we'll learn today the concept of financial management in this lecture before that will first learn finance and management separately finance includes banking leverage credit capital markets money and investments the world finance refers to money management and other valuables which can be converted easily into cash finance is concerned with cash because business is directly or indirectly connected with cash for an ounce includes the activities like investing or pouring the money saving them money forecasting and budgeting of the money investment includes personal investments in stocks bonds debentures certificates deposit accounts well money is borrowed from various financial institutions banks non banking institutions by mortgage hypothecation or pledged also finance is divided into personal finance corporate finance and public finance see the definition of finance finance is a simple task of providing funds acquired by the entities like companies firms individuals and others on the terms that are most favorable to achieve their economic objectives finance is the procurement to get or obtain funds and effective utilization of friends it also deals with profits that adequately compensate for the costs and risk borne by the business see the definition of management management is a guide to a group of people and coordinating their efforts for attaining the common objectives the word management includes main machines material and money and methods which are called as five aims of management the term management is a continuous process which is goal-oriented accepted universally and mighty oriented it is a group activity and dynamic function it is generally divided into top level middle level and lower level see the definition management can be defined as the process of administering and controlling the affairs of the organization irrespective of its nature type structure and size it is an act of creating and maintaining such a business environment wherein the members of the organization can work together and achieve business objectives efficiently and effectively it is intangible activity according to FW Taylor management is an art of knowing what is to be done and saying that it is done in the best possible manner henri fayol says that management is to forecast to plan to organize to command and to coordinate and control the activities of others thus the word financial management is the combination of the words finance and management financial management concept of financial management financial management is the important function of every modern business organization which is the master activity no business activity can be started without financial support financial management is a lifeblood of any business without finance neither any business organization could be established nor could it be successfully run financial management is the management of Finance of an organization in order to achieve financial objectives financial management is that part of managerial activity which is concerned with planning and controlling of financial resources of an enterprise funds are acquired by various sources and procurement of these fancies required the front procure from different sources variants in terms of cost risk and control of funds a smart financial manager will know that the funds should be procured at minimum cost balance risk and control factors in simple words we can say that if you save me today I will save you tomorrow see the definition of financial management according to joseph l Massey financial management is the operational activity of the business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations now we say the meaning of financial management finance is a study of money management it may deal with the methods in which businessman investors government financial institutions and families handle their money financial management includes preparing cash budgets raising money managing flow of money allocating and utilizing money evaluating investments and helping in pricing policy of the products or services in the consumer evolution of financial management it is included in three phases first is traditional faiths second one is a transitional phase and thirdly modern fields see first traditional fields financial management was considered necessary only during occasional events like the course mergers expansion and liquidation while taking the financial decisions the news of outsiders like investment bankers people who lend money has to be kept in mind secondly transitional phase in this stage the day-to-day problems of the financial managers are given importance like fund analysis planning and control thirdly modern fields it is important to carry on financial analysis for a company in the modern fields many theories have been developed relating to efficient markets capital budgeting option pricing and valuation models now see the characteristics of modern financial management system firstly it is an integral part of management secondly it is concerned with efficient use of capital funds thirdly it is a technique of deciding the sources of capital and finding the methods of optimum utilization of available resources fourthly it aims at formulating rational policies for optimum use of business funds fifthly it is important role in decision-making and day-to-day activities sixthly it is considered as art and science because it requires analytical skills and thorough knowledge of modern decision techniques seventhly financial decisions are taken only by top business executives Italy financial decisions affect the size of earnings and risk factor 90s Financial Management is a continuous function and not the occasional function 10th is the principles and techniques of financial management can be applied in business industry trade and commerce 11th is the nature of financial management is interdisciplinary which uses the principles of law economics accounting statistics and management 12th is the area covered in it involves the problem areas of money 13th financial management plays advisory role in every business 14th is it cuts across the functional disciplines like production or sales function 15 is it is an area of expert personal 16th financial management plays an important role in social economic and political environment 17 is it plays dynamic and future oriented rule 18th it is the base of business planning and control objectives of financial management objectives of financial management are divided into two basic levels first at macro level it includes number one to make an economic and intensive use of scarce resources spatially capital resources number two to operate on a sound and safe basis number three to avoid inevitable and reasonable risks of business operations fourthly to procure Cerie funds for business relate as indirect social responsibility second one is it is operated at micro level it includes number one to use a goal-oriented financial structure of the concern in every business enterprise number two to achieve the goals of financial department by the financial manager number three to achieve the overall operating activities of the concern organization this helps indirectly in achieving the goals objectives of financial management it is divided into four parts first is basic objectives it includes profit maximization and wealth maximization secondly operational objectives it includes timely availability of requisite finances most effective utilization of finances safety of investments growth of the enterprise thirdly social objectives timely payment of interest payment of reasonable dividends timely payment of wages timely payment of taxes maintaining relations with finances fourth one research objectives researching into new and better sources of finances objectives provide in the automatic framework for decision making in the business in financial area the main objective of any business is the growth and survival in order to survive the ups and downs in the business and to grow any business unit must earn sufficient profits it must also maintain the cordial relations with the investors customers employees and other social groups a clear objective of business is necessary to form such types of objectives it is the duty of the top management when the objectives of the financial management are clear then other decisions relating to investments financing and dividends are taken easily so primary objectives of financial management are firstly maximization of profits no business activity is done without earning profits the management has to reflect efficiency and effectiveness in the use of limited resources secondly only those activities should be taken up which increase the profit production should be maximized from limited resources or the cost should be minimized for a particular level of production volume the profit maximization is available on firstly rationality of person secondly maximization of social benefits thirdly effective allocation and uses of resources fourthly managerial decisions fifthly source of incentives and six-one growth of the business now we will see the advantages of maximization of profits first one every business should try to maximize the profits whenever the conditions are favorable for the unit second one profit maximization has to be obtained even in the cost of social welfare thirdly without profit motive every business activity would remain on a static level and process of every business depends upon the dynamic level fourthly every business of high profitability and generate a high level of funds and can provide an incremental return to its shareholders fifth one the success of every organization depends upon the efficiency of the working of the business so wall must be to get more and more profits sixthly calculation of profits is easy 7 things is to determine the link between financial decisions and profits now see disadvantages of maximization of profits it emphasizes this short term it ignores the risk or uncertainty it ignores the timing of returns it requires immediate resources maximization of returns returns are based on amount of profits earned if any concern earn sufficient profits then only distribution of proper dividends to shareholders and sufficient wages and bonus to the employees are possible so every organization is to earn maximum returns for the satisfaction of shareholders and workers thirdly maximization of wealth it is also called as value maximization or net present work maximization value is represented by a market price of company's common stock or equity shares or by net present value that is NPV if the wealth is maximized if the value of the shares are increasing in a market wealth maximization fulfills the need of the creditors employees management and the society it provides the security to outsiders and base for the wage earners wealth maximization is to make effective use of economic resources of the country now see a hundred years of maximization of wealth first one it emphasizes the long term secondly it recognizes risk or uncertainty thirdly it recognizes the timing of returns fourthly it considers the stakeholders returns disadvantages of wealth maximization first one no clear relationship between financial decisions and stock price secondly it can lead exit II and frustration to management the scope of financial management falls in two important three groups firstly liquidity function includes foreclosing cash flows for a specific period obtaining funds from different sources of within required time and proper management of internal funds secondly profitability function includes calculation of cost of capital fixing prices of product or services forecasting future profits and minimizing cost of production or services thirdly management of funds management of short term and long term funds in the business organization by the financial manager now we will see the nature of modern financial management financial management includes the financial activities of business like planning organizing directing and controlling these activities deals with procurement and utilization of money and assessing of needs of money raising required money capital budgeting distribution of surplus financial control in addition to rising of funds it is also concerned with production marketing and other functions relating to the acquisition or distribution of funds the financial needs of business includes evaluation of fixed capital and working capital after deciding the capitalisation financial management has to design an appropriate capital structure of business it includes choice of sources of finance on the basis of cost control risk and other factors after obtaining the funds they have to be allocated in different assets to ensure their effective use in the business on liquidity profitability and safety factors the important function of financial management is to develop sound policies practices control systems to ensure number one the availability of right amount of money at a required time and in the required form number two the effective utilization of procured money number three the proper administration of earnings of the business number for the maintenance of liquidity now we'll see the elements of financial management it includes the financial planning which is sufficient funds are available at the right time to meet the need of business financial control it includes efficient asset utilization security of business assets shareholders introduction then financial decision making it includes decisions about investment financing and dividends are taken into account now see the functions of financial management a part executive functions into that first one is forecasting of financial requirements adequate cash must be available to the organization when required care should be taken about cash inflows and outflows which depends upon the volume of sales so forecasting has been done about cash inflow and cash outflow in the next year second one income management the income will be net earnings after payment of taxes interest to shareholders etc thirdly corporate asset structure management the fixed and current assets of the firm must be managed efficiently to ensure success the finance manager has valuing degree of operating responsibility over existing assets fourthly decision about the investments the allocation of capital of various investments proposals is made in order of their profitability each of these decisions involves risk and a finance manager evaluate the various proposals under uncertainty with the process of capital budgeting fifthly cash management all cash with the enterprise must be managed for the benefits of owners financial manager should try to ascertain the better use than stakeholders outside the company sixty new sources of finance finance manager by forecasting should decide upon the needs and prepare the detailed financial plan for the procurement of short and long term funds seventies analysis and appraisal of financial performance various financial statements are prepared and analyzed and necessary guidelines are set for the future analysis for improving the standard techniques and procedure of financial control is necessary 8:1 negotiations for new finance finance manager has to contact the source carry on negotiations and finalize the terms and conditions of the contract after taking decisions about the needs and suitable sources 90s advice to top management finance manager advice top management about financial matters be part is routine decisions number 1 record-keeping and reporting number 2 preparation of various financial statements number 3 cash planning and its supervision number 4 custody and safeguarding the different financial security number 5 credit management 6 Li providing top management with information on current and perspective financial conditions of the business now we'll see the principles of financial management first of all organization of finances for creation of wealth finance should be organized finance should be tracked by taking into account personal loans bank accounts credit cards brokerages etc secondly spend less than you earn the principle is never spent more than you earn the aim of any person is to control the money for long-term achievements proper budget of earnings and expenditure is required thirdly put your money to work time value of money is very much important though the amount of investment is small in early years saving as early as possible gives the more returns at the age of retirement fourthly limit debt to income producing assets it is the principle that every single paisa is spent to repay the debt if you have to be in debt you must stick to financing items that retain the value over the time factor like a real estate or education fifthly continuously educate yourself for sticking of the plans for investments understanding for investments is very necessary research on various plans of investments increases the knowledge about various options of investments 6ly understand risk while understanding the return of investment the principle is more the risk waiter is the written this is called as a risk return trade-off there is always higher risk in investments like stocks and bonds where the returns are high the risk is in the form of losing the higher capital which is invested in case of deposit certificates or money market accounts the risk is low compared to stocks and bonds because investments are also low and lower risk in losing the invested capital the investments must be diversified so the risk factor is less seventh is diversification of investments there are various ways for verification of income money-making opportunity is a talent or a special skill to search the ways of earning extra income from the existing income is a skill extra income can supplement the existing income which will change the financial profile 8-1 maximize your employment benefits one should take the advantage of available benefits of taxes or out-of-pocket expenses or medical insurances or other perquisites available from employment ninth is we are attention to taxes do not try to avoid it at taxes but try to manage the taxes wisely is the principle of tax management any money can you earn is going to be taxed it is useful to take the advantage of relaxed tax implications for better tax planning plan for the unexpected there are different types of unforeseen emergencies like unemployment accidents medical AIDS natural calamities emergency repairs and maintenance for all types of circumstances enough saving is required it will satisfy the long-term goals and financial security