Traffic Manager (HRTC) – Financial Management
What is Finance
Finance is defined as the provision of money at the time when it is required. Every enterprise, whether big, medium, small, needs finance to carry on its operations and to achieve its target. Without adequate finance, no enterprise can possibly accomplish its objectives.
What is Financial Management
Financial management refers to that part of the management activity, which is concerned with the planning and controlling of firm’s financial resources. It deals with finding out various sources for raising funds for the firm. Financial management is practiced by many corporate firms and can be called Corporation Finance or Business Finance. Financial management is the art of planning, organizing, directing and controlling of the procurement and utilization of the funds and safe disposal of profits to the end that individual, organizational and social objectives are accomplished.
Functions of Financial Management
A financial manager has to concentrate on the following areas of the finance functions:
- Estimating Financial Requirements
The first task of the financial manager is to estimate short term and long-term financial requirement of his business. For this purpose, he will prepare a financial plan for present as well as future. The amount required for purchasing fixed assets as well as the needs of funds for working capital has to be ascertained.
- Deciding Capital Structure
The capital structure refers to the kind and proportion of the different securities for raising funds. After deciding about the quantum of funds required it should be decided which type of security should be raised. Decision about various sources of funds should be linked to cost of raising funds.
- Selecting a Source of Finance
After preparing a capital structure, an appropriate source of finance is selected. Various sources from which finance may be raised, includes share capital, debentures, financial deposits etc. If finance is needed for short periods then banks, public’s deposits, financial institutions may be appropriate. If long-term finance is required the share capital, debentures may be useful.
- Selecting a Pattern of Investment
When fund have been procured then a decision about investment pattern is to be taken. The selection of investment pattern is related to the use of the funds. A decision has to be taken as to which assets are to be purchased. The decision-making techniques such as capital Budgeting, opportunity cost analysis may be applied in making decision about capital expenditures.
- Proper Cash Management
Cash management is an important task of financial manager. The sources of cash may be Cash sales, Collection of debts, Short-term arrangement with the banks. The cash management should be such that neither there is shortage of it and nor it is idle.
- Implementing Financial Controls
An efficient system of financial management necessitates the use of various control devices. Financial control device generally used are: Return Investment; Ratio analysis; Break even analysis; Cost control; Cost and internal audit.
- The use of various control techniques
This will help the financial manager in evaluating the performance in various areas and take corrective measures whenever needed.
- Proper use of Surpluses
The utilization of profits or surpluses as also an important factor in financial management. A judicious use of surpluses is essential for the expansion and diversification plans and also protecting the interest of the shareholders.
Time Value of Money (TVM)
The time value of money (TVM) is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. TVM is also sometimes referred to as present discounted value. The time value of money draws from the idea that rational investors prefer to receive money today rather than the same amount of money in the future because of money’s potential to grow in value over a given period of time. For example, money deposited into a savings account earns a certain interest rate and is therefore said to be compounding in value.
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