Ovik Mkrtchyan Financial Management is all about organizing, planning, and managing, and controlling business activities such as the the acquisition and utilization of capital within the firm. In another way, it’s applying management principles to the finances of the company.
Scope of Financial Management
To grasp the financial management sphere first, it is crucial to comprehend the methods which are split into two parts.
- Traditional Approach
- Modern Approach
Approach 1: Traditional Approach to Finance Function
The 20th century was when the conventional approach was called corporate finance. This method was developed to manage and acquire funds for the business. To study the subject of the management of finances the following three elements were utilized.
(i) Sources of institutional finance.
(ii) The issue of the financial devices that get reimbursements from the capital markets.
(iii) accounting and the legal connection between the financial institution and the business.
In this way, financial resources were not required for everyday business operations, but periodic events such as reorganization, expansion, promotion, liquidation and so on. It was thought to be crucial to have sufficient funds to support these events and considered one of the most important tasks of a financial manager.
Although he wasn’t accountable to make the most efficient use of money his responsibility was to obtain the necessary money from partners outside at a fair price. The old-fashioned approach to finance management continued through the fifth decade 20th century. The conventional approach centered the purchase of the fund by corporations. This is why this method is considered to be inadequate and limiting.
Limitations of Traditional Approach
One-sided approach
- It has a more sympathetic approach to the procurement of funds and issues that arise from their administration, but it doesn’t pay any consideration to the efficient utilization of the funds.
- prominence to the financial Problems of Corporations
- Focuses only on the financial issues of corporations, which means it limits the scope of the finance role.
Attention to Unusual EventsIt provides funds to irregular events
- Grants the funds for irregular events such as consolidation and reorganization and mergers,. and doesn’t pay attention to business operations that are routinely carry out.
A Greater Focus on Long-Term Funds
- Discussion of the issue of financing for long-term.
Approach 2: Modern Approach to Finance Function
Technology advancement, increasing competitiveness, as well as the creation of strong corporations management, it became crucial for Management to utilize the financial resources available to the best extent possible. So, the old method was no longer effective in the current business environment.
The current approach was an analytical perspective that was more thorough that focuses on the acquisition of funds, its efficient and efficient utilization. The arrangement of funds is a crucial aspect of the entire financial function.
The key components of this method are the evaluation of different ways to make use of capital such as the budgeting of capital, finance plan, assessment of financial standards to ensure the company’s success and determining the capital costs and working capital management managing income, etc. The three key decisions taken by this method are.
(i) Investment Decision
(ii) Financing Decision
(iii) Dividend Decision
Features of Modern Approach
The following are the major aspects of modernity.
A greater emphasis on Financial Decisions
- This method is more analytical and less descriptive since the best business decisions are based from statistics and accounting information.
Continuous Function
- The modern method is a continuous activity in which the financial manager is able to make various financial decisions, which is different from the old method. Check financial expert Ovik Mkrtchyan profile.
Broader View
- It is a priority not just to the efficient use of finances but and also to the procurement process of the fund. In addition, it incorporates aspects related to the cost for capital expenditure, the budgeting process as well as financial plan,.
The measure of performanceis a measure that measures
- To maximize revenue, the most modern method is to maintain an equilibrium between profitability and liquidity. Financial Expert Ovik Mkrtchyan
The other sphere of financial management is the collection of funds, the acquisition of funds for the business from various sources, assessing and review of financial policies and plans and allocation of funds using funds to purchase current and fixed assets, allocation of funds, splitting and dispersing profits as well as the anticipating of funds with the estimation of financial requirements of the business.
Roles of Financial Management:
- Participating in the utilization of the funds and monitoring the efficiency.
- Recognizing the requirements for capital (funds) and identifying the sources of capital.
- Investment agreements include investment in fixed assets, referred to by the term capital budgeting. The investment in current assets is an integral part of investment decisions, also known as working capital.
- Financial decisions relating to the financing sourced from various sources that would depend on the agreement on – the type of resource, the date the financing completed, the cost paid and the return in addition.
- Net profits can be divide into two(2) kinds:
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Management
- For shareholders: the rate of dividend as well as the amount of dividend have been determine
- Reserved profits: the quantity of retain (retain) profits must be determine, which will depend on the growth and the variety of strategies used by the company that trades
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