Financial management is concerned with procurement and use of funds. Its main aim is to use business funds in such a way that the firm’s value / earnings are maximized. Financial management provides a frame work for selecting a proper course of action and deciding a viable commercial strategy. The main objective of a business is to maximize the owner’s economic welfare. This objective can be achieved by; Profit Maximization, and Wealth Maximization. 1. Profit Maximization Profit earning is the main aim of every economic activity. A business being an economic institution must earn profit to cover its costs and provide funds for growth. No business can survive without earning profit. Profit is a measure of efficiency of a business enterprise. Profits also serve as a protection against risks which cannot be ensured. The accumulated profits enable a business to face Continue reading
Financial Concepts
Need for Financial Restructuring
Financial restructuring is the reorganization of the financial assets and liabilities of a corporation in order to create the most beneficial financial environment for the company. The process of financial restructuring is often associated with corporate restructuring, in that restructuring the general function and composition of the company is likely to impact the financial health of the corporation. When completed, this reordering of corporate assets and liabilities can help the company to remain competitive, even in a depressed economy. Just about every business goes through a phase of financial restructuring at one time or another. In some cases, the process of restructuring takes place as a means of allocating resources for a new marketing campaign or the launch of a new product line. When this happens, the restructure is often viewed as a sign that the company is financially stable and has set goals for future growth and expansion. Need Continue reading
Financial Analysis with the DuPont Model
The dynamic environment of the world today suggests that one should be apt enough to apply his skills immanent to a system and also external with respect to credit management function. These functions include financial planning, plausibility of a defined business strategy or whether a particular merger or acquisition is feasible or not. This has to be done in a rapid yet meaningful way so as to be of immediate need to a particular firm or investor. There are basically four major reasons for an effective financial statement analysis. These have been mentioned as follows: It is useful for long-run business viability so as to determine whether a firm would be able to provide adequate business return when compared to the amount of risks taken. This is essential for outside investors. It is also used by creditors so as to find out whether a potential buyer has the capability to Continue reading
The Objective of Shareholder Wealth Maximization
In old times, the traditional approach of companies was to maximize the owner’s profit. Modern approach puts more emphasis on Shareholder Wealth Maximization rather than owner profit maximization. This includes increasing the earnings per share (EPS) of every shareholder so that their net worth is maximized. Wealth increase is equal to what gross present worth in needed for raising profits in the future. This value needs to be discounted as per the time frame to found out the annualized rate of return for the shareholder. In Shareholder Wealth Maximization, it places priority before any other objective for the organization. Any action which has positive effective on Shareholder Wealth Maximization needs to be given priority. In any capitalistic society, the goal of business should be Shareholder Wealth Maximization as mostly the ownership of goods and services is by individuals, since, they own all the means so that they can make money. Continue reading
Labor Cost Control – Meaning and Need
Labor cost covers one of the major portion of the total cost of a product or job. It may increase unnecessarily due to inefficiency of workers, wastage of materials by workers, idle time, unusual overtime work and high labor turnover. Hence, the management should devise effective techniques for controlling labor cost to ensure maximum outputs of better quality at low cost through proper utilization of the labor force. Basically, management is concerned with controlling labor cost. Labor cost control involves such systems, procedures, techniques and tools used by the management in order to keep the labor cost of the product or job as minimum as possible. Labor cost control consists of a number of such regular activities which are carried on by various departments of the organization in a coordinated manner to ensure the availability of the best employees and their optimum utilization. It is the system followed by the Continue reading
Structure and Trading System in Secondary Market
The securities market has essentially three categories of participants, viz., the issuer of securities, investors in securities and the intermediaries. The issuers are the borrowers or deficit-units, who issue securities to raise funds for their business activities. The investors, who are surplus savers, deploy their savings by subscribing to these securities and issue funds for the business activities. The intermediaries are the agents who match the needs of users and suppliers of funds for a commission. The secondary market or the stock exchange system in India is represented by 23 stock exchanges including the National Stock Exchange of India(NSE), the Over The Counter Exchange of India, the Inter connected Stock Exchange of India and 20 other stock exchanges located at different places. However at present, trades take place only at NSE and BSE and other stock exchanges have become redundant. The operations of stock exchanges are regulated, supervised and controlled Continue reading