Scope of Financial Management
The scope of financial management can be divided in two approaches. Namely Under traditional approach and Modern Approach
Under Traditional Approach
In the traditional approach for corporate finance was the term used
in place of financial management. The role of financial management was limited
to measuring the funds required for the corporate body to meet its financial
requirements. Thus the scope of financial management was narrow under the
traditional approach of financial management. Financial Management under
traditional approach covered the following aspects,
§ Arrangement of funds from financial institutions
§ It looked after the legal and accounting relationship between the
company and suppliers of various sources of funds.
Under Modern Approach
Under the modern approach of Financial
Management is not concerned with the raising of funds instead it also includes
making wise financial decisions of fund raising. It covers the following
aspects
§ Funds Requirement Decision:
Here the decision is concerned with the forecasting or estimation
of funds as per the need by the business. In business funds are very essential to carry out the smooth operations of the business activities. If proper fund requirement decision is not made then it will give rise to many problems and will affect the operations of the business and also will become a constraint in the development of business.
§ Financing Decision:
Here the decisions are concerned with the procurement of the funds required at right time. After fund requirement decision is made then the financial manager has to explore various options available for financing and should choose the best and cost effect option for financing so that the business runs smoothly without any unnecessary obstacles such as inadequate fund.
§ Investment Decisions:
The decisions are concerned with the allocation of funds to
investment proposal. Many of the business today invest in the startups and also in other good investment deals to make profits and also to use the available funds for effective utilization.
§ Dividend Decision:
Here the decision is concerned with the determination of the
percentage of profit earned to be paid to the shareholders or dividend. Here financial manager makes decision regarding how much dividend is to be paid out and how much to retain as retain earning. Dividend payout decision is a critical decision to be made so that investors and shareholders are happy and even the firm has enough funds for the expansion of the business.
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