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Financial Management is an essential part of the economic and non econom ic activities which leads to decide the efficient procurement and utilization of finan ce with profitable manner. In the olden days the subject Financial Management was a part of accountancy with the traditional approaches. Now a days it has been enlarged with in novative and multi dimensional functions in the field of business with the effect of industrialization, Financial Management has become a vital part of the business concern and they are concentrating more in the field of Financial Management. Financial Manag ement also developed as corporate finance, business finance, financial economics, financial mathematics and financial engineering. Understanding the basic concept about the fin ancial management becomes an essential part for the students of economics, commerce and ma nagement. This book provides detailed information about the finance and finance re lated area with simple language and the concepts are explained with easy examples.

This book is also

prepared based on the B.Com., B.B.A., B.B.M., M.Com., and M.B.A. syllabus of various universities for the benefits of the students.

AUTHORS

Preface

Preface(v)

C HAPTER - 1INTRODUCTION TO FINANCIAL MANAGEMENT1-10

Introduction1

Meaning of Finance 1

Definition of Finance 1

Definition of Business Finance 2

Types of Finance2

Definition of Financial Management 3

Scope of Financial Management 4

Objectives of Financial Management 5

Profit maximization5

Favourable arguments for profit maximization6

Unfavorable arguments for profit maximization6

Drawbacks of profit maximization6

Wealth maximization6

Favourable arguments for wealth maximization7

Unfavourable arguments for wealth maximization7

Approaches to Financial Management7

Traditional approach8

Functions of Finance Manager8

Importance of Financial Management9

Financial planning9

Acquisition of funds9

Proper use of funds10

Financial decision10

Improve profitability10

Contents

Contents

Increase the value of the firm 10

Promoting savings 10

Model Questions10

C

HAPTER - 2FINANCIAL STATEMENT ANALYSIS11-24

Introduction11

Meaning and Definition 11

Income statement 12

Position statement 12

Statement of changes in owners equity 12

Statement of changes in financial position 12

Types of Financial Statement Analysis 13

Techniques of Financial Statement Analysis 14

Comparative statement analysis 15

Comparative balance-sheet analysis 15

Comparative profit and loss account analysis 16

Trend analysis 17

Common size analysis 17

Funds Flow Statement 18

Cash Flow Statement 19

Difference between funds flow and cash flow statement 19

Ratio Analysis20

Liquidity ratio21

Activity ratio21

Solvency ratio22

Profitability ratio22

Model Questions24

C

HAPTER - 3SOURCES OF FINANCING25-39

Introduction25

Long-term financial requirements or Fixed capital requirement 25 Short-term financial requirements or Working capital requirement 25

Sources of Finance 26

Security Finance28

Characters of security finance 28

Types of security finance 28

Ownership securities 28

Equity Shares28

Features of equity shares 28

Advantages of equity shares 29

Disadvantages of equity shares 30

Preference Shares 30

Irredeemable preference shares 31

Contents

Participating preference shares 31

Non-participating preference shares 31

Convertible preference shares 31

Non-convertible preference shares 31

Features of preference shares 31

Advantages of preference shares 31

Disadvantages of preference shares 32

Deferred Shares32

No Par Shares32

Creditorship securities 33

Debentures33

Types of debentures33

Features of debentures34

Advantages of debenture34

Disadvantages of debenture34

Internal Finance35

Depreciation funds35

Retained earnings35

Advantages of retained earnings36

Disadvantages of retained earnings36

Loan Financing37

Financial institutions37

Commercial banks37

Short-term loans38

Development banks38

Model Questions38

C

HAPTER - 4CAPITALIZATION41-45

Introduction41

Meaning of Capital 41

Fixed capital41

Definition of fixed capital41

Character of fixed capital42

Working capital42

Capitalization42

Meaning of capitalization42

Definition of capitalization43

Types of Capitalization43

Over capitalization43

Causes of over capitalization43

Effects of over capitalization44

Remedies for over capitalization44

Under capitalization44

Causes of under capitalization44

Contents

Effects of under capitalization 45

Remedies of under capitalization 45

Watered capitalization 45

Causes of watered capital 45

C

HAPTER - 5CAPITAL STRUCTURE47-64

Introduction47

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