Scope of Financial Management
The Scope of the Financial Management is wide , it is not only related with the only financial Activities in the long terms like Risk and return , value maximization , and optimum or efficient allocation of funds although equally it is used in short terms .Scope of Financial Management tell us about its all working area or we can say limitation of its field .
Financial Management
↓
Financial Decision
↓
Financial Decision Investment Decision Dividend Decision
↓ ↓
↓
Risk Return
Value Maximization
( Scope Chart of Financial Management )
Financial Management :- As it described in the previous article that Financial Management is the management of the financial activities in the long term and short term . In the long term under Financial activities , Financial decision , investment decisions & Dividend decision came , and apart from that it also consider the Risk and Return for maximizing the value of the organization .
apart from the long term decision , there are some short term decision also noticeable which company maintain for maximizing its overall growth .
1. Financial Decision :-
Under Financial decision Organization consider its different sources for arranging its finance like Preference share , Equity Share , Debentures , Retained Earning etc .
These are all 4 sources for arranging finance for the company by which company consider all the aspects what is good for the company in terms of cost of capital .
In the other words these four sources have its own cost of capital which can be high and can be low for the company .For intense :- Debenture are more cheap-able than Equity as it has higher risk for the company in terms of interest which paid by the organization in all the condition whether company is having its profit or loss. But in case of equity share company does not have any compulsion regarding to pay its dividend , so it 's not risky but it has higher cost as comparison of debentures ,
here the dividend rate on shares is higher than interest rate of debentures .
2.Investment Decision :-
In investment decision organization analyze its different aspects to put its all investment in the practical decision . In other words organization consider only that option which is benefited them in terms of RIO & Payback Period .
ROI says return on investment
Payback period Says Getting the return in what no. of years
For intense we standardized our different aspects before making investment in terms of its benefit & earning back period if we get maximum outcome in the minimum time which we standardized already in project , then we select the project and if we get opposite remark about the same then it will not be benefited for the organization .
Thus organization consider the investment decision on the result of ROI & Payback period .
3. Dividend Decision :-
In dividend decision company take the decision to distribute its earning part to the shareholders in terns of dividend , if company doesn't distribute its part of earning they retain it in its reserve fund .
and retain ratio called as retention ratio of the organization .
If the organization has its sufficient earning and do not have updated investment option they distribute its earning among the shareholders and if the organization have its opposite phase then they retain the earning .
Dividend distributions decision is depends upon the board if directors decision where they want to retain or distribute .
Thanks & Regards
Versha Bansal
Comments
Post a Comment