Functions of financial mamagement

The decisions or functions that are to be performed by financial management to archive the objectives of the firm are known as finance functions. In the initial stage of development of financial management, the finance functions a firm were limited only to collection of funds. Now the functions and responsibilities of financial management have extended to collection and efficient utilization of funds. A separate finance department is normally structured in large organizations. The responsibility in finance department is comprehensive and clearly defined in

Managerial Actions to maximoize shareholder wealth

Stockholders' wealth can be maximized by maximizing the price of a firm's stock. To maximize the price of a firm's stock, the management must consider the following things:

• Projected earning per share
• Timing of the earning stream
• Riskiness of the projected earning
  
• Use of debt
• Dividend policy

Thus, stock price is also effaced by the dividend policy adopted by a firm. A firm should follow optimal dividend policy that
can maximize the market price of stocks.

stock PriceMaximization and Social Welfare

The primary goal of the corporation is to maximize shareholder's wealth. But there is correlation between social welfare and stock price maximization, due to the following reasons.

1. To a large extent, the owners of stock are society:Seventy five years ago this was not true, because most stock ownership was concentrated in the hands of a relatively small segment of society,comprised of the wealthiest individuals. Since, then has been explosive growth in pension funds, life insurance companies and mutual funds.Most people with a retirement plan have an indirect ownership interest in stock. Thus most members of society now have an important stake in the stock market,either directly or indirectly. Therefore, when a manager takes actions to maximize the stock price, this potentially improves the qualities of life for millions of ordinary people.
   
2. Consumer's benefit : stock price maximization requires efficient, low cost business that produces high quality goods and service at the lowest possible cost. This means that companies must develop products and services that consumers want and need.
3. Employee benefit:If the company is able to increase stock prices also grow and add more employees .thus benefiting society.
   

Stock are the real owners of a corporation.They purchase stocks because they want to a good on their investment without under risk exposure. Stockholders first select directors who then hire managers to run the corporation on a day to day basis. Managers are supposed to be working on behalf of stockholders.So, financial managers need to know about the interest of the stockholders. There is no unanimity about that interest of stockholders. Some people believe that maximizing corporate profit is the interest of stockholders. On the other side, many people believe that maximizing this wealth is the interest of stockholders. Let is explain about these two interest short.

Profit Maximization

The profit maximization has been recognized as the goal of financoal management on the following grounds:

• Only those firms survive in the long run in a competitive amount of profit.
• Profit maximization is a time honored goal of a firm.
  
• It has been found extremely accurate in predicting certain aspect of a firm's behavior and trends.
• Profit is the most reliable measure of the efficiency of a firm.It is also the source of internal finance.
• Profit can be used as a performance evaluation criteria and profit maximization leads efficient allocation of resources.

Stockholders'Wealth Maximization
Wealth maximization is the superior goal to profit maximization due to the following reasons:

• Profit maximization goal ignores the timing of returns whereas stockholders' wealth maximization goal considers it.
• Profit maximization goal does not consider the risk or uncertainty of the prospective earning stream whereas stockholders' wealth maximization goal considers it.
  
• Benefits are measured in terms of cash flows. In investment and financing decisions, cash flow are more relevant than accounting profit.
• It is relevant to ling run.
• 
  

The financial manager

A financial manager is a person who is responsible for a significant investment and financing decision. He or she is responsible to carry out the finance functions. The financial manager occupies a key position in an organization. He or she in one of the members of the top management team and his or her role is becoming more pervasive, intensive and significant in solving the complex management to that of maintaining problem. Now, his or her functions are not confined to that of maintaining records, preparing reports and raising funds when needed. He or she is not a staff officer in a passive role of an adviser. The financial manager is now involved in the most vital decision of the allocation of scarce capital. In his or her new role, he or she needs to have a broader and far- sighted outlook, and must ensure that the funds of the enterprise are utilized in the most efficient manner. He or she must realize that his or her actions have far reaching consequences for the firm because they influence the size, profitability, growth and survival of the firm. Therefore, financial managers must have a clear understanding and a strong grasp of the nature and scope of financial functions.

Responsibilities of Financial Manager

The main task of financial manager is to manage the acquisition and efficient utilization of cash so as to maximize the value of the firm. Almost all the areas of a firm are affected by he functions or failure of a firm of a depends upon the decision of the financial manager. The major responsibilities of financial manager are as follows:

1.Financial planning and forecasting
2.Major investment and financing decision
3.Co-ordination and control
4.Dealing with the financial markets
5.Risk management

Capital Bugeting

The term capital refers to long term assets used in production, while a budget plan which details projected inflows during some future period. So, the capital budget is a planned expenditure on long term assets and capital budgeting is the process of evaluating and selecting making

Finance

Finance, the art and science of managing money, affects the lives every person and every organization. Finance concerned with the process, institution involved in the transfer pf money among and between individuals, business and governments.

Managerial finance which concern with the duties of the financial managers in the business firm. Financial managers actively manage the financial affairs of many types of business - private and public, large and small, financial and non financial, profit seeking and not profit seeking. They administrative investment analysis and funds procurement.