Hence, this approach is regarded as narrow and defective. A balance should be struck in using funds for paying dividend and retaining earnings for financing expansion plans, etc. The following are the main features of a modern approach. If management does not want to dilute ownership then debentures should be issued in preference to shares. This audio is hosted on a service that uses preferencestracking cookies. A judicious use of surpluses is essential for expansion and diversification plans and also in protecting the interests of shareholders. These cookies are currently disabled - to listen to this audio, you will need to consent to and re-enable preferences cookies in your Cookie Settings. Financial decisions associated with the finance raised from different sources which would rely upon the accord on – the kind of resource, when is the financing done, cost incurred and the returns as well. A decision will have to be taken as to which assets are to be purchased? While spending on various assets, the principles of safety, profitability and liquidity should not be ignored. (in projects or takeovers or working capital) need to be analysed to ensure that they are beneficial to the investor. It may be wise to finance fixed assets through long-term debts. Proper Use of Surpluses: The uitlisation of profits or surpluses is also an important factor in financial management. The level of gearing that is appropriate for a business depends on a number of practical issues: Life cycle - A new, growing business will find it difficult to forecast cash flows with any certainty so high levels of gearing are unwise. The use of various control techniques by the finance manager will help him in evaluating the performance in various areas and take corrective measures whenever needed. The features are: 1. Cox and published by Prof. Dr. Alan Wong online in one yearly volume from 2008 until end 2012. and does not give attention to everyday business operations. Deciding Capital Structure 3. The modern approach had a more comprehensive analytical viewpoint with a focus on the procurement of funds and its active and optimum use. Privacy Policy 9. The traditional approach of finance management stayed until the 5th decade of the 20th century. Financial control addresses questions such as: • Are assets being used efficiently? The traditional approach only emphasized on the fund’s procurement only by corporations. Some sources may not be providing that much cash which we should have thought. Financial management may be defined as planning, organising, directing and controlling the financial activities of an organisation. • Are the businesses assets secure? The inadequacy of funds will adversely affect the day-to-day working of the concern whereas excess funds may tempt a management to indulge in extravagant spending or speculative activities. Report a Violation 11. To put it in other words, it is applying general management standards to the financial resources of the firm. After deciding about the quantum of funds required it should be decided which type of securities should be raised. Investment accords incorporate investment in fixed assets known as capital budgeting. All this information will help in efficient management of cash. If cash is spent on avoidable expenses then such spending may be curtailed. Even in various categories of assets, a decision about the type of fixed or other assets will be essential. The selection of an investment pattern is related to the use of funds. Content Filtration 6. To learn more such interesting concepts, stay tuned to BYJU’S. 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The funds will have to be spent first on fixed assets and then an appropriate portion will be retained for working capital. The cash management should be such that neither there is a shortage of it and nor it is idle. Financial control devices generally used are: Return on investment is the best control device to evaluate the performance of various financial policies. The need, purpose, object and cost involved may be the factors influencing the selection of a suitable source of financing. Financial management, financial and management accounting. The modern approach is a constant activity where the financial manager makes different financing decisions unlike the traditional method. For this purpose, he will prepare a financial plan for present as well as for future. Uploader Agreement. A judicious policy for distributing surpluses will be essential for maintaining proper growth of the unit. Entirely depending upon overdrafts and cash credits for meeting working capital needs may not be suitable. Disclaimer 8. We'll assume you're OK with this if you continue. After preparing a capital structure, an appropriate source of finance is selected. The nature and purpose of financial management. Journal of Risk and Financial Management (ISSN 1911-8074; ISSN 1911-8066 for printed edition) is an international peer-reviewed open access journal on risk and financial management. The concept of ‘Scope of Financial Management’ is explained in detail in this article, which is very helpful for the Commerce students. This article throws light upon the top seven features of financial management. Since October 2013, it is published monthly and online by MDPI. In the case of dividend decision, the finance manager is the who is responsible for the accord that is taken by him or her; regarding the net profit distribution (NPD).