IFCRM BLOG

Financial management has undergone fundamental changes as regards its scope and coverage. Financial management is the application of planning and control to the finance function. It helps in profit planning, measuring costs, and accounts receivables. It also helps in monitoring the effective deployment of funds in fixed assets and in working capital. It aims at ensuring that adequate cash s on hand to meet the required current and capital expenditure. If facilitates ensuring that significant capital is procured at the minimum cost to maintain adequate cash on hand to meet any exigencies that may arise in the course of business. Financial management helps in ascertaining and managing not only current requirements but also future needs of an organization. It ensures that funds are available at eh right time and procurement of funds does not interfere with the right of management and exercising control over the affairs of the company.

Traditional approach is concerned with rising of funds used in an organization. It compasses instruments, institutions and practice through which funds are augmented; the legal and accounting relationship between a company and its sources of funds. Modern approach is concerned determination of the sum total amount of funds to employ in the firm. Allocation of resources should be done efficiently to various assets. Processing the best mix of financing should be done. An analysis of the aforesaid approaches unfold that modern approach involving an integrated approach to finance has considered not only determination of total amount of funds but also allocation of resources efficiently to various assets of the firm. Thus one can easily decipher that the concept of finance has undergone a perceptible change. Today finance is best characterized as ever changing with new ideas and techniques. Academicians and financial managers must grow to accept the changing environment and master its challenge.

Increasing profitability planning and control of finance function, aims at increasing profitability of the concerns. It is true that money generates money. To increase profitability, sufficient funds will have to be invested. Finance function should be so planned that the concern neither suffers from inadequacy of funds nor wastes more funds than required. A proper control should also be exercised so that scarce resources are not frittered away on uneconomical operations. The cost of acquiring funds also influences profitability of the business. Maximizing value of firm is aims at maximizing the value of the firm. It is generally said that a concern’s value is linked with its profitability. The funds should be used in such a way that maximum benefit is derived form them. First approach just emphasizes only on the liquidity and financing of the enterprise.

The terms controller and treasurer are in fact used in USA. This pattern is not popular in Indian corporate sector. Practically, the controller or financial controller in India carried out the functions of a Chief Accountant or Finance Officer of an organization. Financial controller who has been a person of executive rank does not control the finance, but monitors whether funds so augmented are properly utilized. The function of the treasurer of an organization is to raise funds and manage funds. The treasures functions include forecasting the financial requirements, administering the flow of cash, managing credit, floatation of securities, maintaining relations with financial institutions and protecting funds and securities. The controller’s functions include providing information to formulate accounting and costing policies, preparation of financial reports, direction of internal auditing, budgeting, and inventory control payment of taxes.

Assessing the financial requirements objective of finance function is to assess the financial needs of an organization and then finding out suitable sources for raising them. The sources should be commensurate with the needs of the business. If funds are needed for longer periods then long-term sources like share capital, debentures, term loans may be explored. Proper utilization of funds though rising of funds is important but their effective utilization is more important. The funds should be used in such a way that maximum benefit is derived from them. The returns from their use should be more than their cost. It should be ensured that funds do not remain idle at any point of time. The funds committed to various operations should be effectively utilized. Those projects should be preferred which are beneficial to the business.

Finance function is the process of acquiring and utilizing funds of a business. Finance functions are related to overall management of an organization. Finance function is concerned with the policy decisions such as like of business, size of firm, type of equipment used, use of debt, liquidity position. In most of the organizations, financial operations are centralized. Finance functions are performed in all business firms, irrespective of their sizes, legal forms of organization. They contribute to the survival and growth of the firm. Finance function is primarily involved with the data analysis for use in decision making. Finance functions are concerned with the basic business activities of a firm, in addition to external environmental factors which affect basic business activities, namely, production and marketing. Finance functions comprise control functions also. The central focus of finance function is evaluation of the firm.

Management accounting refers to accounting for the management. It provides necessary information to assist the management in the creation of policy and in the day to day operations. It enables the management to discharge all its functions, namely, planning, organizing, staffing, direction and control efficiently with the help of accounting information. Functions of management accounting include all activities connected with collecting, processing, interpreting and presenting information to the management. According to management accounting is the term used to describe the accounting methods, systems and technique which coupled with special knowledge and ability, assist management in its task of maximizing profits or minimizing losses. Management accounting is related to the establishment of cost centers, preparation of budgets, and preparation of cost control accounts and fixing of responsibility for different functions.