Grade 12 Exam > Grade 12 Videos > Business Studies for Grade 12 > Introduction, Functions and Objectives of Financial Management
Introduction, Functions and Objectives of Financial Management Video Lecture | Business Studies for Grade 12
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FAQs on Introduction, Functions and Objectives of Financial Management Video Lecture - Business Studies for Grade 12
| 1. What is financial management in commerce? |  |
Ans. Financial management in commerce refers to the process of planning, organizing, directing, and controlling the financial activities of an organization. It involves making decisions related to financial resources, such as capital budgeting, investment decisions, financing decisions, and managing cash flow. The objective of financial management is to maximize the wealth of shareholders by ensuring efficient allocation of resources and achieving the organization's financial goals.
| 2. What are the functions of financial management in commerce? | |
Ans. The functions of financial management in commerce include:
1. Financial Planning: This involves setting financial goals and developing strategies to achieve them. It includes forecasting future financial needs, estimating the required funds, and creating a financial plan.
2. Capital Budgeting: This function involves evaluating and selecting investment projects that maximize the value of the organization. It includes analyzing the potential returns and risks associated with different investment opportunities.
3. Financing Decisions: Financial management helps in determining the optimal capital structure of the organization, i.e., the mix of debt and equity financing. It involves deciding on the sources of funds and raising capital through debt or equity issuance.
4. Risk Management: Financial management plays a crucial role in identifying and managing financial risks faced by the organization. It involves assessing and mitigating risks related to currency fluctuations, interest rates, credit, liquidity, and operational factors.
5. Financial Control: This function focuses on monitoring and controlling the financial performance of the organization. It includes establishing financial controls, conducting financial analysis, and ensuring compliance with financial regulations and reporting standards.
| 3. What are the objectives of financial management in commerce? | |
Ans. The objectives of financial management in commerce are:
1. Profit Maximization: The primary objective of financial management is to maximize the profitability of the organization by generating higher returns on investment.
2. Wealth Maximization: Financial management aims to maximize the wealth of shareholders by increasing the market value of the organization's shares. This is achieved by making investment decisions that generate positive net present value (NPV) and increasing the organization's profitability.
3. Ensuring Liquidity: Financial management focuses on maintaining an optimal level of liquidity to meet the organization's short-term obligations. It involves managing cash flow, maintaining adequate working capital, and ensuring the availability of funds when needed.
4. Efficient Allocation of Resources: Financial management aims to ensure the efficient allocation of financial resources by evaluating and selecting the most profitable investment projects. It involves capital budgeting decisions that consider risk and return trade-offs.
5. Long-term Stability: Financial management aims to ensure the long-term stability and sustainability of the organization by managing risks effectively, maintaining a healthy capital structure, and achieving consistent profitability.
| 4. How does financial management contribute to the success of a commerce organization? | |
Ans. Financial management contributes to the success of a commerce organization in several ways:
1. Efficient Resource Allocation: By making sound investment decisions, financial management helps allocate the organization's resources effectively. It ensures that funds are invested in projects that generate the highest returns and contribute to the organization's growth and profitability.
2. Risk Management: Financial management involves identifying and managing financial risks faced by the organization. By implementing risk management strategies, such as hedging against currency fluctuations or interest rate risks, it helps protect the organization from potential losses and ensures its long-term stability.
3. Optimal Capital Structure: Financial management determines the optimal mix of debt and equity financing for the organization. By maintaining an appropriate capital structure, it helps minimize the cost of capital and maximize the value of the organization.
4. Financial Planning: Financial management involves developing a comprehensive financial plan for the organization. It helps set financial goals, forecast future cash flows, and allocate resources accordingly. This enables the organization to make informed decisions and adapt to changing market conditions.
5. Performance Evaluation: Financial management plays a crucial role in evaluating the financial performance of the organization. It involves analyzing financial statements, conducting financial ratios analysis, and benchmarking against industry standards. This helps identify areas of improvement and measure the organization's success.
| 5. What are the key principles of financial management in commerce? | |
Ans. The key principles of financial management in commerce include:
1. Principle of Risk and Return: Financial management involves making investment decisions that consider the trade-off between risk and return. Higher returns are expected from investments with higher risks, and vice versa. The principle guides organizations in evaluating and selecting investment projects that align with their risk appetite.
2. Principle of Time Value of Money: The principle recognizes that the value of money changes over time. Financial management considers the time value of money in investment decisions, such as calculating present value, future value, and net present value. It helps in evaluating the profitability and feasibility of investment projects.
3. Principle of Profit Maximization: Financial management aims to maximize the profitability of the organization. It involves making decisions that generate higher returns on investment and increase the organization's profitability.
4. Principle of Diversification: Financial management encourages diversifying investment portfolios to manage risks effectively. By investing in a variety of assets, industries, and regions, organizations can reduce the impact of individual risks and achieve a more balanced risk-return profile.
5. Principle of Cost-Benefit Analysis: Financial management involves conducting cost-benefit analysis for investment decisions. It evaluates the costs associated with an investment project and compares them to the expected benefits. This helps in determining the feasibility and profitability of the project.
Text Transcript from Video
hello students I am dr. Elena and today
I am going to start the topic financial
management that is your ninth chapter
from the business studies book class
12th right so we will start with the
definition of financial management what
financial management is financial
management is the operational activity
of a business that is responsible for
obtaining and effectively utilizing the
funds necessary for efficient operations
so it is covering two important aspects
that is first is obtaining right that is
acquiring funds and second one is
utilizing those acquired funds for
example if we have to start the business
and we require fund maybe of 10 lakh
rupees right so what are the different
sources from which we will acquire we
will procure those 10 lakh rupees and
how we are going to invest those 10 10
lakh rupees in such a way that we should
get higher rate of return right so that
is financial management is how we are
managing finance all money which we have
in our hand for running a business fine
now the next question arises why do we
manage finance we have money with us so
what is the need of managing that right
as we have discussed in the first
chapter that is management there are two
important ingredients or components of
management right which differentiates
management from the ordinary things fine
that is those two important ingredients
are efficiency and effectiveness fine
so we need to manage finance in order to
make activities more effective and
efficient fine now two important
functions of financial management are
acquisition of funds or procurement of
finance or funds right second one is
allocation of funds means how we are in
string those acquired funds so when we
acquire when we arrange money from
different sources right we have to make
sure that there should be you know there
should be no higher costs involved in
acquiring the money right and second one
is if we have acquired the money right
we have to make wise decisions while
investing that acquired money so that we
should be able to get higher rate of
return right higher profits right so
that we can further distribute those
profits among the shareholders or we can
grow as a business fine
so to increase the efficiency and
effectiveness of business activities we
need to manage the finance as all other
business activities or or all other
business activities they depend on the
money we have right without money
nothing can happen fine so for all
business activities we need finance
we'll need money to be managed well
right now the next question is why do we
need finance why do we need finance Abby
we have discussed that why we have to
manage finance now the second question
is why do we need finance Pasek is our
birth care Hamid why do we need it fine
we need ask for you know you must be
knowing that while starting a business
you know in the life in the life of a
business there are various stages you
know there are various stages through
which our business run right so these
three stages are establishment growth
establishment survival and growth fine
these three main stages of any business
are establishment survival and growth
so we require money or finance for
establishment
or to start a business to start a
business for starting any business we
require money because without money we
cannot arrange those other factors of
production labor land right or labor
land or you know any other thing we
cannot arrange right second one is to
run a business to run a business that is
survival a business is run in an
environment full of competitors we have
n number of competitors we have to
compete with them we have to every time
we have to show and we have to prove
ourselves that we are better than others
in terms of you know earning profits
fine so to run in the business to remain
in the business to remain in the
competition we need to have money we
need to have finance right third one is
to expand to modernize and to diversify
why need why we need to innovate why we
need to be creative why we need to
expand grow why we need to diversify we
need to diversify we need to expand in
terms of growth if a company is earning
your surplus profit extra profit right
so that particular business they utilize
that profit for the expansion purpose
for the growth purpose right so for that
also we require finance or we require
money right now the fourth one is we
have to buy certain assets right we have
to purchase by certain assets to to buy
assets we require finance money right
now there are different kind of assets
right there are two
two main categories of assets are
tangible assets and intangible assets
tangible and intangible
now what tangible assets are tangible
assets are which we can touch right for
example furniture building these are the
tangible assets we can touch them right
intangible assets are which we cannot
touch but we can feel their presence
for example trademarks patents right so
for acquiring these assets for
purchasing these assets we require
finance we require money right now next
one is to run day-to-day business
activities now what are the day-to-day
business activities the day-to-day
business activities are that we have to
pay salaries we have to pay wages we
have to buy stationery we have to buy
purchase raw material right so for all
those purposes we require money we
require finance right so to conclude we
can say that we require finance for
establishment survival and growth
purchasing assets and to run day-to-day
business activities we need okay now
let's move on to the next topic that is
functions of financial management what
are the major functions of financial
management right for you no matter
before managing finance first we have to
identify or for example for running any
kind of business for starting any kind
of business first we have to identify
that what amount of money do we require
fine how make it not buy such I hear how
much you know money to be require so
first we have to identify based on the
size of the business may be the size of
the business we identify the need of
Fanaa
how much money do I require for example
if I have to start establishment I have
to start a business and for starting
that business I require one crore rupees
fine and I have 50 lakhs in my hand
right - the rest amount which I require
that I will acquire that I will raise
from different sources okay
so identify the need of Finance how much
I have how much I need okay
now the second one is to identify
various sources of finance right we have
to after identifying the need of Anna's
now we have to identify various sources
from where we can raise funds ideally
there are two sources of Anna's
borrowers fund and the shareholders or
equity fund borrowers fund covers
debentures loans on any kind ofyou know
loan which we get from a bank or from
financial institutions that lie on the
borrower's file
what comes under equity fund or
shareholders file or shares issue of
shares preference shares equity shares
retained earning any surplus this all
lies under shareholders fun right so
financial management looks at that you
know from what different sources we have
to acquire money or in it in what
portion okay now the third one is after
identifying different sources of raising
funds now we have to do a comparison we
have to compare various sources of
finance in terms of the cost and the
risk involved right
for example debt funds or we can say the
borrowers fund they are less risky fine
whereas the shareholders funds they have
high risk right involved so we have to
before you know choosing or making a
choosing or
acquiring finances from those resources
first we have to look at the cost
involved fine and the risk involved
right then only we have to make that
particular source a part of our capital
structure okay
third one is once we have decided upon
the different sources from where we'll
be raising funds depends on the cost and
the risk involved now we are supposed to
invest that amount right we have raised
money we have a quiet money now we are
supposed to invest that money we have to
make investment of that acquired money
or procured money in such a way that it
is going to give us higher return right
or precisely you can say that the cost
of acquisition or cost of procurement
okay it should be you know cost of
equipment should be lower then the
return of investment or we can say that
the return on investment should be
higher than the cost of procurement that
depicts that shows that we have made a
wise investment decision fine for
example if we have acquired we have
raised one lakh rupees you know from
some when I have borrowed one lakh
rupees from someone and on that I have
to pay interest of 10% per annum right
so I am supposed to give him the
principal amount that is one lakh rupees
and I have to give him ten thousand
rupees per year as interest so I am
supposed to give one lakh 10000 to that
borrower okay who is my friend fine now
I have to invest now the second thing is
I have to invest that 1 lakh rupees in
such a way that I should be able to
fetch at least one lakh fifty thousand
rupees so that I will be able to have
profit of forty thousand rupees after
deducting that principal amount of one
lakh rupees plus ten thousand rupees
which is interest so now I have that
forty thousand rupees in my hand so you
know in a way you can say that whatever
amount I have acquired on that I should
be able to get something surplus you
know which I will be further using for
investing in my business okay now the
next topic that is the objectives of
financial management okay
the main objective of financial
management is the wealth maximization
okay main objective is a wealth
maximization we manage finance in order
to increase the wealth of the
shareholders right and how is it
possible how is visit possible first of
all you have to understand that what is
the best maximization and what is the
formula of wealth maximization
shareholders wealth is equals to wealth
of shareholder is equals to the number
of shares held number of shares hand
held by the shareholder because as I
told you shareholder equity shareholders
they are the owners of the company so
now
you
I am going to start the topic financial
management that is your ninth chapter
from the business studies book class
12th right so we will start with the
definition of financial management what
financial management is financial
management is the operational activity
of a business that is responsible for
obtaining and effectively utilizing the
funds necessary for efficient operations
so it is covering two important aspects
that is first is obtaining right that is
acquiring funds and second one is
utilizing those acquired funds for
example if we have to start the business
and we require fund maybe of 10 lakh
rupees right so what are the different
sources from which we will acquire we
will procure those 10 lakh rupees and
how we are going to invest those 10 10
lakh rupees in such a way that we should
get higher rate of return right so that
is financial management is how we are
managing finance all money which we have
in our hand for running a business fine
now the next question arises why do we
manage finance we have money with us so
what is the need of managing that right
as we have discussed in the first
chapter that is management there are two
important ingredients or components of
management right which differentiates
management from the ordinary things fine
that is those two important ingredients
are efficiency and effectiveness fine
so we need to manage finance in order to
make activities more effective and
efficient fine now two important
functions of financial management are
acquisition of funds or procurement of
finance or funds right second one is
allocation of funds means how we are in
string those acquired funds so when we
acquire when we arrange money from
different sources right we have to make
sure that there should be you know there
should be no higher costs involved in
acquiring the money right and second one
is if we have acquired the money right
we have to make wise decisions while
investing that acquired money so that we
should be able to get higher rate of
return right higher profits right so
that we can further distribute those
profits among the shareholders or we can
grow as a business fine
so to increase the efficiency and
effectiveness of business activities we
need to manage the finance as all other
business activities or or all other
business activities they depend on the
money we have right without money
nothing can happen fine so for all
business activities we need finance
we'll need money to be managed well
right now the next question is why do we
need finance why do we need finance Abby
we have discussed that why we have to
manage finance now the second question
is why do we need finance Pasek is our
birth care Hamid why do we need it fine
we need ask for you know you must be
knowing that while starting a business
you know in the life in the life of a
business there are various stages you
know there are various stages through
which our business run right so these
three stages are establishment growth
establishment survival and growth fine
these three main stages of any business
are establishment survival and growth
so we require money or finance for
establishment
or to start a business to start a
business for starting any business we
require money because without money we
cannot arrange those other factors of
production labor land right or labor
land or you know any other thing we
cannot arrange right second one is to
run a business to run a business that is
survival a business is run in an
environment full of competitors we have
n number of competitors we have to
compete with them we have to every time
we have to show and we have to prove
ourselves that we are better than others
in terms of you know earning profits
fine so to run in the business to remain
in the business to remain in the
competition we need to have money we
need to have finance right third one is
to expand to modernize and to diversify
why need why we need to innovate why we
need to be creative why we need to
expand grow why we need to diversify we
need to diversify we need to expand in
terms of growth if a company is earning
your surplus profit extra profit right
so that particular business they utilize
that profit for the expansion purpose
for the growth purpose right so for that
also we require finance or we require
money right now the fourth one is we
have to buy certain assets right we have
to purchase by certain assets to to buy
assets we require finance money right
now there are different kind of assets
right there are two
two main categories of assets are
tangible assets and intangible assets
tangible and intangible
now what tangible assets are tangible
assets are which we can touch right for
example furniture building these are the
tangible assets we can touch them right
intangible assets are which we cannot
touch but we can feel their presence
for example trademarks patents right so
for acquiring these assets for
purchasing these assets we require
finance we require money right now next
one is to run day-to-day business
activities now what are the day-to-day
business activities the day-to-day
business activities are that we have to
pay salaries we have to pay wages we
have to buy stationery we have to buy
purchase raw material right so for all
those purposes we require money we
require finance right so to conclude we
can say that we require finance for
establishment survival and growth
purchasing assets and to run day-to-day
business activities we need okay now
let's move on to the next topic that is
functions of financial management what
are the major functions of financial
management right for you no matter
before managing finance first we have to
identify or for example for running any
kind of business for starting any kind
of business first we have to identify
that what amount of money do we require
fine how make it not buy such I hear how
much you know money to be require so
first we have to identify based on the
size of the business may be the size of
the business we identify the need of
Fanaa
how much money do I require for example
if I have to start establishment I have
to start a business and for starting
that business I require one crore rupees
fine and I have 50 lakhs in my hand
right - the rest amount which I require
that I will acquire that I will raise
from different sources okay
so identify the need of Finance how much
I have how much I need okay
now the second one is to identify
various sources of finance right we have
to after identifying the need of Anna's
now we have to identify various sources
from where we can raise funds ideally
there are two sources of Anna's
borrowers fund and the shareholders or
equity fund borrowers fund covers
debentures loans on any kind ofyou know
loan which we get from a bank or from
financial institutions that lie on the
borrower's file
what comes under equity fund or
shareholders file or shares issue of
shares preference shares equity shares
retained earning any surplus this all
lies under shareholders fun right so
financial management looks at that you
know from what different sources we have
to acquire money or in it in what
portion okay now the third one is after
identifying different sources of raising
funds now we have to do a comparison we
have to compare various sources of
finance in terms of the cost and the
risk involved right
for example debt funds or we can say the
borrowers fund they are less risky fine
whereas the shareholders funds they have
high risk right involved so we have to
before you know choosing or making a
choosing or
acquiring finances from those resources
first we have to look at the cost
involved fine and the risk involved
right then only we have to make that
particular source a part of our capital
structure okay
third one is once we have decided upon
the different sources from where we'll
be raising funds depends on the cost and
the risk involved now we are supposed to
invest that amount right we have raised
money we have a quiet money now we are
supposed to invest that money we have to
make investment of that acquired money
or procured money in such a way that it
is going to give us higher return right
or precisely you can say that the cost
of acquisition or cost of procurement
okay it should be you know cost of
equipment should be lower then the
return of investment or we can say that
the return on investment should be
higher than the cost of procurement that
depicts that shows that we have made a
wise investment decision fine for
example if we have acquired we have
raised one lakh rupees you know from
some when I have borrowed one lakh
rupees from someone and on that I have
to pay interest of 10% per annum right
so I am supposed to give him the
principal amount that is one lakh rupees
and I have to give him ten thousand
rupees per year as interest so I am
supposed to give one lakh 10000 to that
borrower okay who is my friend fine now
I have to invest now the second thing is
I have to invest that 1 lakh rupees in
such a way that I should be able to
fetch at least one lakh fifty thousand
rupees so that I will be able to have
profit of forty thousand rupees after
deducting that principal amount of one
lakh rupees plus ten thousand rupees
which is interest so now I have that
forty thousand rupees in my hand so you
know in a way you can say that whatever
amount I have acquired on that I should
be able to get something surplus you
know which I will be further using for
investing in my business okay now the
next topic that is the objectives of
financial management okay
the main objective of financial
management is the wealth maximization
okay main objective is a wealth
maximization we manage finance in order
to increase the wealth of the
shareholders right and how is it
possible how is visit possible first of
all you have to understand that what is
the best maximization and what is the
formula of wealth maximization
shareholders wealth is equals to wealth
of shareholder is equals to the number
of shares held number of shares hand
held by the shareholder because as I
told you shareholder equity shareholders
they are the owners of the company so
now
you
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Nov 25, 2024 Last updated |
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