Before looking into the two main objectives of finance management, let us look at the lighter side of money. Some hilarious quotes that will make your day: “Money is like a sixth sense – and you can’t make use of the other five without it.” – William Somerset Maugham “The safest way to double your money is to fold it over and put it in your pocket.” – Kin Hubbard “Money is the best deodorant.” – Elizabeth Taylor “If you think nobody cares if you’re alive, try missing a couple of car payments.” – Earl Wilson “Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” ~Sam Ewing “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” – Will Smith  “There’s a way of transferring funds that is even faster than electronic banking. It’s called marriage.” — James Holt McGavran Objectives of Financial Management may be Broadly Divided into Two Parts such as: 1. Profit maximization 2. Wealth maximization. Profit Maximization The main purpose of any kind of economic activity is earning profit. A business concern operates mainly for the purpose of making profit. Profit has become the yardstick to measure the business efficiency of a concern. Profit maximization is also the out-moded and narrow approach, which aims at, maximizing the profit of the concern. Profit maximization consists of the following important features. Favorable Arguments for Profit Maximization:  The following important points are in support of the profit maximization objectives of the business concern: Main aim is earning profit. Profit is the parameter of the business operation. Profit reduces risk of the business concern. Profit is the main source of finance. Pprofitability meets the social needs also. Unfavorable Arguments for Profit Maximization:  The following important points are against the objectives of profit maximization: Profit maximization leads to exploiting workers and consumers. Profit maximization may lead to unethical practices, unfair trade practice, etc. Profit maximization objectives lead to inequalities among the stake holders such as customers, suppliers, public shareholders, etc.  Drawbacks of Profit Maximization:  Profit maximization objective consists of certain drawbacks also: It is vague: Profit is not defined precisely or correctly. It ignores the time value of money: Profit maximization does not consider the time value of money or the net present value of the cash inflow. It leads to certain differences between the actual cash inflow and net present cash flow during a particular period. It ignores risk: Profit maximization does not consider risk of the business concern. Risks may be internal or external which will affect the overall operation of the business concern.  Wealth Maximization Wealth maximization is one of the modern approaches, which involves latest innovations and improvements in the field of the business concern. The term wealth means shareholder wealth or the wealth of the persons those who are involved in the business concern. Wealth maximization is also known as value maximization or net present worth maximization. This objective is a universally accepted concept in the field of business. Favorable Arguments for Wealth Maximization: Wealth maximization is superior to the profit maximization because the main aim of the business concern under this concept is to improve the value or wealth of the shareholders. Wealth maximization considers the comparison of the value to cost associated with the business concern. Total value detected from the total cost incurred for the business operation. It provides exact value of the business concern. Wealth maximization considers both time and risk of the business concern. Wealth maximization provides efficient distribution of resources. It ensures the economic interest of...

Scope of Financial Management Facebook Buys WhatsApp: Boneheaded or Brilliant? This was the title of a  Forbes Article when Mark Zuckerberg acquired Whatsapp for $19 billion dollars, the price that may exceed the GNP of some of those countries. Mark is said to be an unconventional thinker and the WhatsApp acquisition shows Facebook’s determination to follow the road not yet paved. It is a bold move, yet filled with risks along the way. This is one of the finest examples of the big investment decisions of recent times and the right course of action,  if you measure the number of potential users of the mobile messaging service rather than the cost of acquiring each user and the potential for selling ads to each user today. Follow these mind blowing tips to become prosperous Picture Courtesy : YoungHstlrs Financial management is one of the important aspects of overall management, which is directly asscoiated with various functional departments like personnel, marketing and production. Financial management embraces wide area with multidimensional approaches. The following are the important scope of financial management. Some of the major scope of financial management are as follows: 1. Investment Decision 2. Financing Decision 3. Dividend Decision 4. Working Capital Decision. 1. Investment Decision: The investment decision involves Risk EvaluationMeasurement of cost of capital andEstimation of expected benefits from a project. Capital budgeting and liquidity are the other two major components of investment decision. Capital budgeting takes care of the distribution of capital and commitment of funds in permanent assets to harvest revenue in future. Capital budgeting is a very focal decision as it impacts the long-term success and growth of a firm. All the same it is a very tough decision because it encompasses the estimation of costs and benefits which are uncertain and unknown.   Picture Courtesy: Crowdfundingheroes 2. Financing Decision: Financing decision is related to financing mix or financial structure of the firm. The raising of funds requires decisions regarding Methods and sources of financeRelative proportion and choice between alternative sourcesTime of floatation of securities, etc. In order to meet its investment needs, a firm can raise funds from various sources. Long Term Sources of Finance: Share Capital or Equity SharesPreference Capital or Preference SharesRetained Earnings or Internal AccrualsDebenture / BondsTerm Loans from Financial Institutes, Government, and Commercial BanksVenture FundingAsset SecuritizationInternational Financing by way of Euro Issue, Foreign Currency Loans, ADR, GDR etc.  Picture Courtesy: Cash & Treasury Management file   Medium Term Sources of Finance: Preference Capital or Preference SharesDebenture / BondsMedium Term Loans fromFinancial InstitutesGovernment, andCommercial BanksLease FinanceHire Purchase Finance   Short Term Sources of Finance: Trade CreditShort Term Loans like Working Capital Loans from Commercial BanksFixed Deposits for a period of 1 year or lessAdvances received from customersCreditorsPayablesFactoring ServicesBill Discounting etc.   3. Dividend Decision: In order to accomplish the goal of wealth maximization, a proper dividend policy must be established. One feature of dividend policy is to decide whether to distribute all the profits in the form of dividends or to plough back the profit into business. While deciding the optimum dividend payout ratio (proportion of net profits to be paid out to shareholders), the finance manager should consider the following: Investment opportunities available to the firmPlans for expansion and growth,Dividend stabilityForm of dividends, i.e., cash dividends or stock dividends, etc.   4. Working Capital Decision: Working capital decision is related to the FINANCING in current assets and current liabilities. Current assets include cash, receivables, inventory, short-term securities, etc. Current liabilities consist of creditors, bills payable, outstanding expenses, bank overdraft, etc. Current assets are those assets which are convertible into cash within a year. Similarly, current liabilities are those liabilities, which are likely to mature for payment within...

Meaning and Definition of Finance Meaning of Finance The science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities. The financial systems include the public, private and government spaces, and the study of finance and financial instruments, which can relate to countless assets and liabilities. Finance is divided into three distinct categories: public finance, corporate finance and personal finance, all three consisting of  many sub-categories. The one word which can easily substitute finance is “exchange.” Finance is nothing but an exchange of available resources. Finance is not restricted only to the exchange and/or management of money. A barter trading system is also a type of finance. Thus, we can say, Finance is an art of managing various available resources like money, assets, investments, securities, etc.   Some Definitions of Finance The concept of finance includes capital, funds, money, and amount. But each word has its unique meaning. Studying and understanding the concept of finance becomes an important part of the business concern. Definition of Business Finance According to the Wheeler, “Business finance is that business activity which concerns with the acquisition and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise”. According to the Guthumann and Dougall, “Business finance can broadly be defined as the activity concerned with planning, raising, controlling, administering of the funds used in the business”. In the words of Parhter and Wert, “Business finance deals primarily with raising, administering and disbursing funds by privately owned business units operating in non-financial fields of industry”. The term finance comes from the Latin “finis” which means end or finish . It is a term whose implications affect both individuals and businesses, organizations and states it has to do with obtaining and using or money management – Ivan Thompson According to Bodie and Merton, finance is the “study how scarce resources are allocated over time”. Corporate Finance Corporate finance is concerned with budgeting, financial forecasting, cash management, credit administration, investment analysis and fund procurement of the business concern and the business concern needs to adopt modern technology and application suitable to the global environment.   Corporate finance is the area of finance dealing with the sources of funding and the capital structure of corporations and the actions that managers take to increase the value of the firm to the shareholders, as well as the tools and analysis used to allocate financial resources.   The financial activities related to running a corporation. A division or department that oversees the financial activities of a company. Corporate finance is primarily concerned with maximizing shareholder value through long-term and short-term financial planning and the implementation of various strategies. Everything from capital investment decisions to investment banking falls under the domain of corporate finance.   According to the Encyclopedia of Social Sciences, “Corporation finance deals with the financial problems of corporate enterprises. These problems include the financial aspects of the promotion of new enterprises and their administration during early development, the accounting problems connected with the distinction between capital and income, the administrative questions created by growth and expansion, and finally, the financial adjustments required for the bolstering up or rehabilitation of a corporation which has come into financial difficulties”. The core corporate finance principles can be stated as follows: The Investment Principle: It is better to invest in assets and projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate should be higher for riskier projects and should reflect the financing mix used—owners funds (equity) or borrowed money (debt). Returns on projects should be evaluated  based on cash flows generated and the timing of these cash flows; they should...

What it takes to be a Leader What is #Corporate Social Responsibility? High performance is generally measured against key business imperatives including #competitive advantage, #sales, #talent management, #operational efficiency, #return on investment and profitability. It is no longer adequate for a corporation to revel in economic prosperity in isolation from those agents impacted by its actions. Today, a new element of leadership is making an intense difference in weighing  business performance: Corporate Social Responsibility. The late 1990s and the early 2000s saw an uptake in businesses giving proceeds or providing volunteers to causes related to their brands. Some called it “corporate social responsibility”; others called it “corporate #philanthropy” or “#corporate citizenship.” Regardless of its title, it was a way for business to increase visibility while raising funds for good. The spotlight is on both increasing the firm’s bottom line and being a good corporate citizen. Keeping abreast of global trends and remaining committed to financial obligations to deliver both private and public benefits have compelled organizations to restructure their frameworks, rules, and business models. Where does the roots of CSR lie? Although the #roots of CSR lie in altruistic activities (such as donations, charity, relief work, etc.) of corporations, globally, the concept of CSR has evolved and now embraces all allied concepts such as triple bottom line, corporate citizenship, philanthropy, #strategic philanthropy, #shared value, #corporate sustainability and business responsibility. You might be wondering what is “Triple bottom line?” (abbreviated as TBL or 3BL) – The term coined by John Elkington in 1994,  incorporates the notion of sustainability into business decisions. The TBL is an #accounting framework with three dimensions: social, environmental (or ecological) and financial. “A plethora of research points to a majority of stakeholders agreeing that CSR is a ‘must do’,” and  67% of consumers say they are more likely to buy products and services from a company if they know it supported good causes. Smart Corporations: As a key component in business #strategy and execution, CSR is playing a crucial role in helping organizations to be seen as leaders. Smart corporations are allocating increasing internal resources to CSR investments that include clear objectives and furnish measurable social outcomes. India is a country of multitude contradictions. On the one hand, it has grown to be one of the major economies in the world, and an increasingly important player in the emerging global order, on the other hand, it is still home to the largest number of people living in absolute poverty (even if the proportion of poor people has decreased) and the largest number of malnourished children. This is the sad state of uneven distribution of the benefits of growth which many believe, is the root cause of social unrest. Companies too have been the target of those disconcerted by this lop-sided development and as a result, their contributions to society are under severe scrutiny. Many companies have been astute to sense this development, and have responded proactively while others have done so only when advocated. What it takes to be a Leader-2...

A startup thrives on innovation, resilience, and strategic execution. The secret lies in solving real problems with passion while adapting quickly to challenges. First-time entrepreneurs are often oblivious to their own weak spots. Getting to know your strengths and weaknesses is easier said than done. Self-assess yourself by making a simple list of every business skill you think you possess. Then, add other skills that you think make a good leader/business owner. Add any additional questions you think would be helpful. Take stock of the lacunae in your skillsets, and rank which positions you need to hire first. “Don’t be a lone wolf. Lean on the experience and smarts of your teammates, investors, and mentors to help solve the tough problems and take advantage of the opportunities – SETH BANNON, Amicus Factors for Startup Success If you want your business to be successful, challenge yourself, be honest with yourself, surround yourself with talent, and watch success find you. As you reflect back on the evolution of your business, it will be clear to you that you would not have gotten to this point had you not identified your strengths and weaknesses, looking to fill your weaknesses with external talent. “Know your core competencies and focus on being great at them. Pay up for people in your core competencies. Get the best. Outside the core competencies, hire people that fit your culture but aren’t as expensive to pay.”  – Mark Cuban A start-up small consultancy business might carry out the following SWOT analysis Why Use SWOT Analysis? SWOT Analysis is a very effective way of identifying your Strengths and Weaknesses, and of examining the Opportunities and Threats you face. Carrying out an analysis using the SWOT framework helps you to focus your activities into areas where you are strong and where the greatest opportunities lie. Strengths Being able to respond very quickly due to lack of bureaucracy and red tape, no need for higher management approval, etc. Being able to provide hundred percent good customer care and satisfaction Strong reputation within the market Being able to adapt to the changing market quickly Little overhead, so can offer good value to customers Weaknesses The company has no market presence or reputation Has a small staff with a weak skill base in many areas Vulnerable to vital staff attrition Cash flow will be unreliable in the early stages Opportunities Business sector HAS SCOPE FOR EXPANSION , with many future opportunities for success Local community wants to encourage local businesses as it provides work opportunities to the people of that community Competitors may be slow to adopt new technologies Threats Will developments in technology change this market beyond our ability to adapt? A small change in focus of a large competitor might wipe out any market position we...