Monday, 8 July 2013

Scope of Financial Management

Scope of Financial Management

The 3as concept adequately depicts the meaning & scope of financial management:
1.Anticipating Financial Requirements: 
First of all the financial management makes the plans and estimates the business requirements of the firm. For this purpose he uses cash budget proforma income statement and balance sheet. Cash budget shows the estimated cash inflows, out flows, Income and expenditure of the business. Balance sheet gives a picture of how a firm’s assets and liabilities and equity will look at the end of the period.
2.Acquiring Financial Resources:
After the requirements have been determined the next job of financial management is to be to acquire the needed funds. He can acquire funds from issuing of common or preference shares. He has the option to acquire short term, intermediate term or long term loans from various sources. He will select the source and type of funds according to the requirements of the business and also take care of other considerations like risk, cost of capital and control etc.
3.Allocation of Funds: 
After acquiring funds, the most important job of financial manager is to how these funds allocated among different assets. The assets structure needs proper attention because the business risks related with it. He may invest the funds in low term asset. Short term fixed assets & current assets are called capital budgeting decision. Capital budgeting decisions are much important for a long time and may include very large amount. Investment in current assets is called working capital. Another source of allocating funds is the dividend policy. The form has to pay dividend to its share holders as retain on their investments. The financial manager is responsible for paying dividend to its share holders without damaging the finance position of the firm

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