![]() ![]() You can understand the nature of financial management by studying the nature of investment, financing, and dividend decisions. The scope of financial management is explained in the diagram below: It is important that financial decisions take care of the shareholders‘ interests.įurther, they are upheld by the maximization of the wealth of the shareholders, which depends on the increase in net worth, capital invested in the business, and plowed-back profits for the growth and prosperity of the organization. The introduction to financial management also requires you to understand the scope of financial management. However, the real problem is the efficient utilization of the capital through effective financial planning and control.įurther, the business must ensure that it deals with tasks like ensuring the availability of funds, allocating them, managing them, investing them, controlling costs, forecasting financial requirements, planning profits and estimating returns on investment, assessing working capital, etc. In a developed market, most businesses can raise capital easily. Further, it must also ensure that the profits adequately compensate the costs and risks borne by the business. For example, in the case of a manufacturing company, financial management must ensure that funds are available for installing the production plant and machinery.
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