The provision of funds as and when needed is the definition of finance in its broadest sense. The phrase "Finance Management" has a specific connotation when used in the context of management, nevertheless. Financial management is the study of raising money and using it wisely and effectively in light of the overall goals of the business and the expectations of the funders. The main goal is to increase the firm's worth. To maximise share value for the owners, or equity shareholders, is the goal. If you have anything to share on Financing Write For Us and share your viewpoints.
Two fundamental facets of financial management are:
1. Funds Procurement
Since funds can be gained from a variety of sources, corporate concerns always view their acquisition as a complex problem. A management must take into account the risk, cost, and control features of these funds when they are purchased from various sources. The money should be obtained for the lowest possible price, with a balance of risk and control aspects.
The funds raised by issuing equity shares are the least risky for the company because there is no repayment obligation unless the company is wound up, but they are also the most expensive because shareholders expect higher dividends than market interest rates and because dividends are an appropriation of profits and are not permitted as expenses under the income tax act. The issuance of new equity shares could weaken the existing shareholders' ability to exercise control.
Debentures have a lower cost in comparison since the interest is paid from profits before taxes. Yet, because they must be repaid in accordance with the terms of the contract and interest must be paid whether or not the business generates a profit, they carry a significant level of risk.
Banks and other financial institutions are another source of funding; however, the monies they give are subject to various restrictive covenants. These debt covenants limit the borrower's ability to get loans from additional sources. The reform process is also going towards a more thorough examination of the "end use" of funds raised through capital markets. These limitations are necessary for the security of the money that investors and institutions give.
These debt covenants limit the borrower's ability to get loans from additional sources. The reform process is also going towards a more thorough examination of the "end use" of funds raised through capital markets. These limitations are necessary for the security of the money that investors and institutions give. Other financial tools, such as commercial paper and deep discount bonds, are employed to raise money. The finance manager must strike a balance between the funds' availability and the binding restrictions attached to them, which limit their flexibility.
2. Utilisation of Such Funds Effectively
The efficient use of funds is another duty of the financial manager. He must draw attention to instances where money is misapplied or held idle. All funds are obtained for a specific cost and after assuming a specific level of risk. There is no use in operating the firm if the funds are not used in a way that generates income greater than the cost of acquisition. That is a major factor in dividend decisions as well, therefore it is essential to use money wisely and profitably. So, it is important to properly analyse the financial effects of each choice to invest in fixed assets. Pen down your views on Financing Write For Us and help the audience get a clear vision.
ALSO READ: A Guide to Quora Marketing: How to Utilize It to Boost Your Business