CS Professional – Financial Treasury and Forex Management – Nature and Scope of Financial Management
Introduction: (Nature and Scope of Financial Management) Financial Management is one of the important aspects of the finance. Nobody can think to start a business or company without financial knowledge and management strategies. Finance links itself directly to several functional departments like marketing, production, and personnel. Here we will list out the major scope of the financial notes which help you in your decision-making process.
Key scope of the financial management:
The major scope of the financial management is divided into four categories. Let’s learn and understand the nature and scope of the financial management through below detail notes.
- Investment Decision :
It is all about analysis of risk, the rate of return considering all necessary factor like the cost of funds another factor which may affect investments return of new project favorably and vis-à-vis comes under investment decision. Investment decision is one of the important scopes of the financial management. The two major factors of investment decision are – Capital budgeting and liquidity. Capital Budgeting analyses the future value of the current investment amount in a project by using future value of inflation factors of currency within a certain time period which is called the useful life of the project in such a manner that they will yield earnings in future. It determines the long-term investment which includes replacement and renovation of old assets. It is all about maintaining an appropriate balance between fixed and current assets in order to maximize profitability and to maintain desired liquidity in the firm for its smooth functioning.
- Financing Decision:
Financing Decision is about how to collect funds to support the investment decision already taken. There are different ways to collect finances for the investment in a project. Like the issue of Equity Shares, Ordinary or preference, debenture holders on a long-term basis, financial institutions as long-term loans, banks and others as short-term loans, long-term loans secured unsecured and the like. Different ways of collecting funds can only be followed and executed after due compliances of law and regulations as and when they applied while raising the funds. Financial decisions work on the determination of optimum mix of finances so that maximization of profitability can be assured.
- Dividend Decision:
The Dividend Decision plays a crucial role in today’s corporate era. As the consistent dividend distribution and a good dividend policy lead to a concern towards a trend of economic growth and expansion. Companies top layer of management who are authorized to take the day to day decisions in the course of daily business activity of the companies decides the certain percentage of profit to be distributed as dividends amongst all the investor of the companies come into this criteria. So that an adequate quantity of the return on the investment to the investor can be given. And adequate fund can be used for the growth and expansion of the company.
Financial management is defined as “provision of money when required from time to time.” In this tutorial lesson, we have learned about nature of financial management and scope of financial management. This knowledge will assist you in empowering your financial management decisions.
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