AN OVERVIEW OF FINANCIAL MANAGEMENT In this introductory chapter to financial management, we will discuss the various responsibilities of the corporation’s financial managers and show you how to tackle many of the problems that these managers are expected to face.

To survive and prosper, a company must satisfy its customers. It must also produce and sell products and services at a profit. In order to produce, it needs many assets—plant, equipment, offices, computers, technology, and so on.

The company has to decide(1) which assets to buy and (2) how to pay for them. The financial manager play a key role in both these decisions. The investment decision, that is, the decision to investing assets like plant, equipment, and know-how, is in large part a responsibility of the financial manager. So is the financing decision, the choice of how to pay for such investments.

Responsibilities of Corporate Financial Management Financial Planning. The main responsibility of the financial manager in a large concern is to forecast the needs and sources of finance and ensure the adequate supply cash at proper time

Investment and financing decisions Investment and financing decisions. The financial manager must play a leading role in the investment and financing decisions of the business. Management of risk. The financial manager is responsible for the management of risk. The firm's overall risk is determined by the way in which its assets have been financed.

Raising of Necessary Funds Raising of Necessary Funds. The second main responsibility of the financial officer is to see the nature of the need, i.e., whether finances are required for long-term or for short-term. Controlling the Use of Funds and management of value. The financial manager is responsible for the management of value. The financial manager must keep in touch with the financial market that is the money market and capital market.

Disposition of Profits Disposition of Profits. Appropriation of profits is one of the main responsibilities of the financial manager. Responsibility to owners. Shareholders or stock-holders are the real owners of the concern.

Legal Obligations. Financial manager is also under an obligation to consider the enterprise in the light of its legal obligations. Responsibilities to Employees. The financial management must try to produce a healthy going concern capable of maintaining regular employment at satisfactory rate of pay under favourable working conditions.

Responsibilities to Customers Responsibilities to Customers. In order to make the payments of its customers' bill, the effective financial management is necessary. Wealth Maximization. Prof. Soloman of Stanford University has argued that the main goal of the finance function is wealth maximization. The other goals may be achieved automatically.

Objectives of Corporate Finance (a) Profit maximization, (b) Return maximization, and (c) Wealth maximization.

Goal of Profit maximization. Maximization of profits is generally regarded as the main objective of a business enterprise. Each company collects its finance by way of issue of shares to the public.

Goal of Return Maximization. The second goal of financial management is to safeguard the economic interests of the persons who are directly or indirectly connected with the company, i.e. shareholders, creditors and employees.

Goal of Wealth Maximization. Frequently, maximization of profits is regarded as the proper objective of the firm but it is not as inclusive a goal as that of maximising it value to its shareholders. Value is represented by the market price of the ordinary share of the company over the long run, which is certainly a reflection of the performance of the company's

Forms of Business Ownership: TO DISCUSS IN GROUPS

Agency theory