Financial Management is the deliberate management of planning and organizing of financial activities. It applies the basic management principle to control the flow of funds and properly utilizes financial resources. It sets the financial goals by properly analyzing the available data. The common methods to carry out financial activities like accounting and budgeting are considered to be the financial management practice. Financial management practices is the discipline dealing with the financial decisions for long and short-term goals to ensure the return on capital exceeds the cost without taking an excessive financial risk. It clarifies the efficient financial management practices and is used in the business to respond to another business environment. It also entails practices across the other organizations to provide an evaluating approach to financial management. It has some impact on the organizational performance because of the relationship between them. Effective management leads to the successful growth of an Continue reading
Financial Management Concepts
Major Considerations in Capital Structure Planning
There are three major considerations in capital structure planning, i.e. risk, cost of capital and control, which help the finance manager in determining the proportion in which he can raise funds from various sources. Although, three factors, i.e. risk, cost and control determines the capital structure of a particular business undertaking at a given point of time. The finance manager attempts to design the Capital Structure in such a manner that his risk and costs are the least and the control of the existing management is diluted to the least extent. Risk – Risk is of two kinds, i.e. financial risk and business risk. Here we are concerned primarily with the financial risk. Financial risk is also of two types: Risk of Cash Insolvency: As a firm raises more debt, its risk of cash insolvency increases. This is due to two reasons. Firstly, higher proportion of debt in the Capital Continue reading
Role of Credit Rating Agencies in Securitization
The credit rating agencies play a major role in the securitization process is to help investors to make informed decisions regarding investment in the underlying securities. As guardians of the public through their research, analysis, and grading of various risks, rating agencies are expected to protect investors against taking excessive credit risk. The ratings allow institutions such as insurance companies and pension funds, who are prohibited to invest in securities rated below investment grade by their respective regulators, to actively participate in the securitized market as investors. Investment grade rating conveys information to the investors that the underlying instrument will pay coupon interest and principal according to the terms of the indenture. Rating agencies play a pivotal role in the securitization process as the ultimate appraiser of the underlying pool of collateral. In their process of appraising and evaluating the likelihood of default by subjecting the cash flows of Continue reading
Financial Manager – Roles and Responsibilities
Ever since the 1900s and even after the Great Depression in the 1930s, the primary role of a finance people was only a descriptive discipline on bookkeeping which means accurately recording all transactions related to the payment of suppliers, billing of customers, and handling of cash passing through the accounts department and issuing periodic financial statements. Until the late 1960s increased competition in industries forced financial managers to shift their focus towards evaluating investment opportunities and making decisions on the choice of assets and liabilities necessary to maximize the company’s value. The 1970s and 80s were a period of increased international competition, CEOs became concerned with operational efficiency to cope with the fast-growing market, this included the accounting functions which were streamlined and required to reach out to become a profit center for the whole organization. This transitional shift was gradual and finance manager’s roles are no longer stuck solely Continue reading