NATURE AND SIGNIFICANCE OF MANAGEMENT — OCM STD 12 Commerce — Question
Gujarat BoardEnglish MediumSTD 12 CommerceOCMNATURE AND SIGNIFICANCE OF MANAGEMENT5 Marks
Question
Give the meaning of Financial Management and explain its functions.
✓
Answer
$(1)$ Introduction: Finance is like life blood of business. No activity is possible without finance. Finance is required for the establishment, development, expansion and modernization of business.
$(2)$ Meaning of Finance Management : Financial management deals with the finance function of business. Finance function means function of acquisition and utilization of capital along with function of allocation of capital. This function must be done in an ideal and efficient manner.
$(3)$ Function of Finance Management :
$(1)$ To Estimate the Financial Needs : Top level management estimates the financial needs of the company keeping in mind long term and short term requirement finance.
$(2)$ Organizing Funds/Finance : Top level management raises finance from different sources of funds keeping in mind long term and short term requirement of finance of the firm.
$(3)$ Preparing Budget : Financial experts prepare budget of the company keeping in mind various incomes and expenditures of the company.
$(4)$ To Allocate Funds : Financial experts also take decisions such as what amount should be kept as various reserves and what should be distributes as divided. They have to decide keeping balance between liquidities and profitability.
$(5)$ To Decide Capital Structure : Financial management has to decides capital structure company and decide which type of instrument should be used to raise funds like Equality, Shares, Preference Shares, Debentures, Bonds, Loan etc. They also decide where to raise the funds from.
$(6)$ Procurement of finance : Financial management raises the finance from the pre-decided sources.
$(7)$ Control Financial Activities : Financial management also keeps control over financial activates of the company and keeps check whether funds are being used judiciously or not.
$(8)$ To Decide Financial Policy : Financial management decides all the policy matters related to finance. What should be the ratio of owners funds borrowed funds, should plugging back of profit be there and to what extent etc. matters are decide by financial management.
$(9)$ To Plan for Taxes : Finance management also has to plan for taxes. How to save taxes etc. Matters are discussed with tax experts and appropriate steps are undertaken.
$(10)$ Make Arrangement of assets : Business unit requires assets to carry out production and day to day activities properly and for all this financial management take appropriate decisions.
$(4)$ Conclusion : It is not only important to raise sufficient funds but it is equally important to utilize those funds optimally. Without proper finance management business cannot be a success.
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