As we understood from the previous section , financial management is concerned with all decisions involving finance. There fore the scope fianancial management encompasses all the fianancial decisions taken by a business enterprise. A business enterprise is established for earning income. Major decisions in any business are related to acquision of assests for business purpose and financing these assets by trapping various sources of finance. The first decision is known as 'investment' decision and second decision is known as 'financing' decision.
Assets' requirement are two types :
1. Fixed assets like land ,building,plant, machinery, furniture, technical know-how ,patent rights , copy rights etc.....
2. Current assests like inventory ( raw materials, working in progress , finished goods ), receivables debators cash etc.........
Expanding the scale of operations, entering a new market , introductuion of new products etc are some of investment decisions that involve the acwuisition of fixed assets. They provide returns for a long period . There fore these are also called long term investment decisions.
Current assets are poetrating asets, which are rewuired for smooth conduct of business. What should be the investment in these current assets ? or what should be the level of these current assets? is a crucial invesment decision. Because ,exess levels of current assets cut into the profitability of a business and insufficiency of current assets result in loss of liquidity. These decisions are called short term investment decisions because their impact on the business is for a short period .
For The purpose of acwuiring these assets (fixed and current) funds are required. Various sources of funds are available. Major sources are two types (1) long-term (2) short-term. Long term borrowing etc.. Short - term sources are bank loans, cash,credit, vall money ,bills dicounting, certificate of deposits etc.. Decisions regarding the source of finance are called fianancing decisions .
Fianancial management takes into its fold
Assets' requirement are two types :
1. Fixed assets like land ,building,plant, machinery, furniture, technical know-how ,patent rights , copy rights etc.....
2. Current assests like inventory ( raw materials, working in progress , finished goods ), receivables debators cash etc.........
Expanding the scale of operations, entering a new market , introductuion of new products etc are some of investment decisions that involve the acwuisition of fixed assets. They provide returns for a long period . There fore these are also called long term investment decisions.
Current assets are poetrating asets, which are rewuired for smooth conduct of business. What should be the investment in these current assets ? or what should be the level of these current assets? is a crucial invesment decision. Because ,exess levels of current assets cut into the profitability of a business and insufficiency of current assets result in loss of liquidity. These decisions are called short term investment decisions because their impact on the business is for a short period .
For The purpose of acwuiring these assets (fixed and current) funds are required. Various sources of funds are available. Major sources are two types (1) long-term (2) short-term. Long term borrowing etc.. Short - term sources are bank loans, cash,credit, vall money ,bills dicounting, certificate of deposits etc.. Decisions regarding the source of finance are called fianancing decisions .
Fianancial management takes into its fold
- Long -term investment decision of capital budgeting decisions .
- Long - term financing decisions of capital structure decisions.
- Short term investment decisions or investment in current assets
- Short term fianancing decisions of fianancing of current assets
The management of current assets and current liabilities is known as working capital management .
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