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What Is The Purpose of Financial Management? Describe The Kinds of Activities That Financial Management Deals With

Ms. Untal

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Mary Joy Beltran
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186 views

What Is The Purpose of Financial Management? Describe The Kinds of Activities That Financial Management Deals With

Ms. Untal

Uploaded by

Mary Joy Beltran
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Activity: 

1. What is the purpose of financial management? Describe the kinds of activities that
financial management deals with. 

Financial Management's purpose is to deal with all the funds and resources of an
individual or an organization, controlling its way of saving, spending, and raising money in a
business – making it a long-term thing.  

As per activities that financial management deals with, it involves the following:
Estimating the amount of capital, Determining capital structure, Choice of sources of funds,
Procurement of funds, Utilization of funds, Disposal of profits or surplus, Management of cash,
and financial control. In estimating the amount of capital, it involves both short-term and long-
term that will be used in purchasing fixed assets, meeting working capital requirements,
modernization, and expansion of business. In determining capital structure, managing the ratio
and equity and debt in terms of short-term and long-term is observed to maximize shareholders'
wealth and achieve a minimum cost of capital. In terms of choosing sources of funds, finance
managers can prefer various financial institutions such as equity shareholders, preference
shareholders, debenture- holders, banks, public deposits, and the like. Procuring funds requires
negotiation. It is also dependent on factors such as the cost of raising funds, general market
conditions, choice of investors, government policy, along with others. To utilize funds, it will be
invested in multiple assets to maximize the return of investment. In disposing of profits or
surplus, the trend of earnings of the company and market price of its shares, the requirements of
funds for self-financing the future programs, and others affect this decision. Managing cash, as
well as other current assets is a vital task for a finance manager, and it comprises projecting cash
inflows and outflows to avert shortage or surplus of cash within the firm. Finally, the financial
control which consists of budgetary control, cost control, internal audit, break-even analysis, and
ratio analysis

2. What is the difference in perspective between finance and accounting?

In terms of variation, finance focuses on money management and investments. It deals


with resource allocation as well as resource management and acquisition. Moreover, it is
concerned with the decision about money from the perspective of a finance manager. On the
other hand, Accounting is more focused on identifying and recording financial transactions of a
company in a day-to-day process. Finance's main goal is to create value. It is done through
managing capital in a way that it earns and mitigates losses. Conversely, Accounting's main
activity is to prepare and report accurate financial statements in compliance with laws and
standards. Summing up, accounting firms also look back on a company's past financial
transaction, while finance looks forward and plans future acquisition of assets.
3. Explain the shareholder wealth maximization goal of the firm and how it can be
measured. Make an argument for why it is a better goal than maximizing profit or vice
versa. 

Wealth maximization is a long-term goal. It is regarded as the proper objective of the


firm. Wealth maximization is measured by considering the risk and timing associated with
expected earnings per share to maximize the price of the firm's common stock.

Shareholder wealth maximation as a better goal:


Wealth maximization is a better goal because it emphasizes the long term, recognizes risk
or uncertainty, recognizes the timing of returns, and considers shareholders' returns. On the flip
side, profit maximization emphasizes the short term, ignores risk or uncertainty, ignores the
timing of returns, and requires immediate resources.

Profit maximation as a better goal:


Profit maximization is generally regarded as the main objective of a business enterprise.
Profits are easier to calculate and determining the link between financial decisions and profits is
much simpler. Contrarily, shareholder wealth maximization offers an unclear relationship
between financial decisions and share price. This may lead to managing anxiety and frustration
and can prorate aggressive and creative accounting practices.

4. Besides maximizing the wealth of the firm, what are some of the other goals of financial
management? 

Aside from wealth maximization, there is also profit maximization and return
maximization as goals of financial management. Profit Maximization increases Earnings per
share (EPS) of the business through earning maximum profit with the help of reducing the cost
of goods sold while maintaining its original sales prices. Return maximization is seizing the
largest portion of the profit which is possible through generating more sales and revenues or
increasing prices without increasing costs. 

5. Suppose you were the financial manager of a not-for-profit business (a not-for-profit hospital).
What kinds of goals do you think would be appropriate? 

If I will be a financial manager of a non-profit hospital, the kind of goal that is suitable
for this type of business are the following: Diverse Funding Sources, Financial Responsibility,
Cash Flow, and Budgeting. Diverse funding sources are essential to generate funds from private
donors or companies that grant support opportunities. As per financial responsibility;
accountability, integrity, and transparency must be observed. Ultimately, budgeting must be
realistic and attainable. As a financial manager, I should focus on the main objectives of the
institution (non-profit hospital), which is to provide better services that will benefit the people
and at the same time, seeks ways to reduce costs. The funds should always be enough to provide
better machines, tools, and services that will be beneficial to the health of the people. 

Enumerations: 

1. Components of Financial Management. (5) 

The five basic components of Financial Management Framework are Planning and
analysis, Assets and Liability Management, Reporting, Transaction Processing, and Control.

2. Major decisions which the finance manager has to take. (3) 

The three major decisions which a finance manager has to take are Investment decisions,
Finance decisions, and Dividend decisions.

3. Objectives of Financial Management (2)

The objectives of Financial Management are Profit Maximization, Return Maximization,


and Wealth Maximization.

Group 2 Members:

Kimberly Asley C. Anselmo


Shainyl Bacay
Mary Joy Beltran
Glaiza Caber
Estephanie Nerbiol

Course/Year/Section
BSBAFM 2-2

Subject Professor:
Ma’am Maria Imelda Untal

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