Nature of Scope of Financial Management
During the past three decades role and responsibilities of finance manager have undergone a marked transformation ever witnessed earlier. The finance manager has now become an integral part of the business enterprise and is involved in all the activities that take place in the enterprise. Until recently, finance executive was considered as keeper of books of accounts and provider of funds needed by the firm. But today his responsibility is not limited ot procurement of funds but extends beyond it to ensure is optimal utilization. He plays pivotal role in planning quantum and pattern of fund requirements, procuring the desired amount of funds. Since all the business activities like marketing, purchase and production involve cash planning and utilization or generation of funds, the finance manager must take cognizance of his involvement in all the activities of the firm. He must also have clear conception of the overall objective of his firm as he has to act in conformity lea with the objective. Furthermore, he has to evaluate the effectiveness of financial decisions in the light of some standard objectives of the firm.
OBJECTIVE OF THE FIRM
Objectives are long-term purpose and mission, which state the reason for existence of the firm and declare what it wants to achieve in the long run. They represent desired results, the firm wishes to attain by its existence arid operations. They indicate specific sphere of aims, activities and accomplishment.
Being profit seeking organization, the management is supposed to set profit maximization as the objectives and accomplishment.
PROFIT MAXIMIZATION OBJECTIVES
Profitability objective may be stated in terms of profits, return on investment, or profit-to sales ratios. According to this objectives, all such actions as increase income and cut down costs should be undertaken and those that are likely to have adverse impact on profitability of the enterprise should be avoided....