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Question
What are the main objectives of financial management? Briefly explain.
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Solution 1
The objectives of financial management can be listed as :-
- To ensure regular and adequate supply of funds
- To ensure adequate return to the shareholders
- To ensure optimum utilisation of funds
- To ensure safety of investment
- To plan sound capital structure that is to maintain of a balance between debt and equity
Solution 2
Meaning: - Financial Management is a specialized function of general management. It refers to the management of business funds. It is mainly concerned with raising finance and its effective utilization for the achievement of goals of the organization.
Definition: -"financial Management is concerned effective use of an important economic resource, namely capital funds."
- Profit Maximisation: -
Profit Maximization is a basic principle of any business activity. According to this principle, all functions of business aim at a profit. The principle of 'profit maximization is a traditional concept. It is based on the assumption that 'profit is a tool of measuring the success of business firm'. In simple words, the business firm should undertake only such activities that increase profit. The business activities which decrease profit should be avoided.
Profit maximization is considered to be the most important business objective because of the following reasons:
- It is difficult for a business to survive without profit.
- Profit is a tool for measuring the success of a business firm.
- High-level profitability results in better returns (dividend) to the shareholders.
- High-level profitability can generate funds, which can be used for future expansion of the business firms.
- Profit maximization has to be achieved for socio-economic welfare.
- Wealth Maximization: -
According to Prof. Solomon Ezra, the ultimate goal of financial management should be the maximization of owners' wealth.
According to him, the maximization of profit is unreal and half motive. The proper aim of financial management is the wealth maximization of equity shareholders.
Wealth maximization is also known as 'value maximization'. It means maximizing the net present value of a firm.The focus of financial management is on wealth maximization of its owners' i.e. suppliers of equity capital. The wealth of shareholders is reflected in the market value of the shares. So wealth maximization means the maximization of the market price of shares. The wealth of equity shareholders is maximized only when the market value of equity shares is maximized.
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Short Answer Question
List any three objectives of financial statements?
Under which of the major heads will the following items be shown while preparing Balance Sheet of a company, as per Schedule III of the Companies Act, 2013:
(i) Unamortised Loss on Issue of Debentures (To be written off after 12 months from the date of Balance Sheet)
(ii) 10% Debentures
(iii) Stock-in-Trade
(iv) Cash at Bank
(v) Bills Receivable
(vi) Goodwill
(vii) Loose Tools
(viii) Truck
(ix) Provision for Tax; and
(x) Sundry Creditors?
Under which heads the following items are shown in the Balance Sheet of a company:
(i) Calls-in-Arrears
(ii) Commission Received in Advance
(iii) Debentures
(iv) Stores and Spare Parts
(v) Land and Building
(vi) Forfeited Shares Account?
Under which major headings and sub-headings the following items will be shown in the Balance Sheet of a company as per schedule III of Companies Act, 2013?
(i) Provision for Employee Benefits.
(ii) Calls-in-Advance.
Hero Ltd. has raised following long-term loans on 1st April, 2018:
| 10,000; 10% Debentures of ₹ 100 each redeemable in four equal yearly | ₹ |
| installments beginning 1st July, 2019 | 10,00,000 |
| 11% Bank Loan from SBI repayable after 5 years | 20,00,000 |
| Interest on Debentures and Bank Loan has not yet been paid. |
How will be the above items shown in the Balance Sheet of the company as at 31st March, 2019?
| Prepare Balance Sheet of the Company as per Schedule III of the Companies Act, 2013: | ₹ |
| 10% Debentures of ₹ 100 each | 1,90,000 |
| Stock-in-Trade (inventories) | 40,000 |
| Goodwill | 20,000 |
| Provision for Tax | 60,000 |
Totalling of Balance Sheet is not required
From the following information extracted from the books of Howrach Ltd., prepare Balance Sheet of the company as at 31st March, 2019 as per Schedule III of the Companies Act, 2013:
| (₹ in '000) | (₹ in '000) | ||
| Long-term Borrowings | 1,000 | Fixed Assets (Tangible) | 1,600 |
| Trade Payable | 60 | Inventories | 40 |
| Share Capital | 800 | Trade Receivables | 160 |
| Reserves and Surplus | 180 | Cash and Cash Equivalents | 240 |
Calculate Cost of Materials Consumed from the following:
Opening Inventory of Materials ₹3,50,000; Finished Goods ₹75,000; Stock-in-Trade ₹2,00,000; Closing Inventory of: Materials ₹3,25,000; Finished Goods ₹85,000; Stock-in-Trade ₹1,50,000; Purchases during the year: Raw Material ₹17,50,000; Stock-in-Trade ₹9,00,000.
From the following information, calculate Change in Inventory of Work-in-Progress: Opening and Closing Work-in-Progress ₹1,00,000 and ₹1,15,000 respectively.
From the following information, calculate Change in Inventory of Work-in-Progress:
Opening and Closing Work-in-Progress ₹1,50,000 and ₹1,45,000 respectively.
From the following information, calculate Change in Inventory of Stock-in-Trade: Opening and Closing Stock-in-Trade ₹5,00,000 and ₹4,50,000 respectively.
From the following information compute the amount to be shown in Note to Accounts on Employees Benefit Expenses: Wages ₹ 5,40,000; Salaries ₹ 7,20,000; bonus ₹ 1,05,000; Staff Welfare Expenses ₹ 60,000 and Business Promotion Expenses ₹ 50,000.
Under which line item (major head) of the Statement of Profit and Loss of non-financial company will the following be shown:
(i) Sale of Goods;
(ii) Revenue from Services Rendered;
(iii) Interest Earned;
(iv) Gain (Profit) on Sale of Assets;
(v) Purchases of Stock-in-Trade;
(vi) Salaries and Wages;
(vii) Interest paid to Bank;
(viii) Carriage Outward?
Under which line item (major head) of the Statement of Profit and Loss of a financial company will the following be shown:
(i) Interest on Loans Given:
(ii) Gain (Profit) on Sale of Securities;
(iii) Loss on Sale of Fixed Assets;
(iv) Interest paid on Deposits;
(v) Depreciation on Computers;
(vi) Goodwill Written off;
(vii) Commission paid for Deposit Mobilisation; and
(viii) Repairs Expenses?
What are the objectives of financial management?
For optimal procurement of funds, a finance manager identifies different available sources and compares those items in terms of cost and associated risks. Identify concept highlighted in the above lines.
Which of the following statements is false regarding financial management?
