CHAPTER 1 An Overview of Financial Management. Functions of Managerial Finance Issues of the New Millennium Forms of Businesses Goals of the Corporation. Functions of Managerial Finance.
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Functions of Managerial Finance
Issues of the New Millennium
Forms of Businesses
Goals of the Corporation
2. Utilization of funds:Capital Budgeting decision. Long term investment decision is made on the basis of risk and return. The goal is profit maximization. This is the most important and challenging function of finance. To predict future profit is difficult as Profit=Total Revenue-Total Cost. TR=P.Q. TC=FC+TVC.
3. Short term asset management: Examples of current assets are cash, marketable securities, receivables, etc., and examples of current liabilities are accounts payable, notes payable, short term loans, etc. A unique feature of current assets is that (unlike fixed assets) current assets does not generate return. Most of the source of financing has some costs. So financing current assets by costly sources is not wise. Current liability is almost cost free. The part of current assets that is financed by current liability is not a problem. The excess of that is called working capital. So, Working capital management deserves attention. The principle is known as Liquidity vs. profitability.
4. Distribution of funds:Dividend policy decision. Dividend policy, repurchase of shares and amortization of debt.
Market Price of Shares
Quantity of stock