The Function and Science of Financial Management Studies

Financial planning is concerned about a good projection of future financial requirements of the firm in order to avoid short falls in financing availability. Financial analysis will help in pinpointing problem areas that have to be resolved. Investment decision is crucial since this involves the choice among investment projects of the one which will yield the highest benefit for the firm in terms of profitability. After choosing the best investment project, the financial manager is confronted with the financing decision. What financing package should be chosen to finance the project. Financing may come from borrowings (bank loans or bonds) or from flotation of equity (common and/or preferred stocks). The financing package which will result in the highest earnings per common share (EPS) should be chosen. Financial Management is concerned with the goal of maximizing stockholders' wealth expressed by the market price of corporate stocks. Market price of stocks can be Increased by improved business profitability and by means of various financial maneuverings which should be an expertise of financial managers. Financial managers should engage in financial analysis and planning, and balance sheet management (managing the firm's assets, liabilities and capital). He is involved in Investment decision and financing decision. Current Asset Management involves the proper handling of cash and marketable securities, account receivable and inventory in order to minimize the costs of investment in these assets. Sources of short-term financing are analyzed based on their costs. The source with lowest cost should be chosen as the best alternative. Working capital requirements usually need short-term financing. Leasing, merger and dividend policy are also discussed as supplementary topics.