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FINANCIAL MANAGEMENT & DEVELOPMENT OF ORGANIZATION
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FINANCIAL MANAGEMENT & DEVELOPMENT OF ORGANIZATION'''

FINANCIAL MANAGEMENT & DEVELOPMENT OF ORGANIZATION

Prepared for: Dr. Md. Waliar Rahman Lecturer of Financial Management SMUCT

Prepared by: 3rd Batch, 3rd Semester, MBA in Product and Fashion Merchandising, SMUCT. Name	ID	Mobile No. Email Id. Md. Moklesur Rahman C Md. Toufiqul Islam Apurba Saha Md. Mokades Hossain Forhad Bin Yousuf Md. Aminul Islam

May 25, 2012. Shanto-Mariam University of Creative Technology

May 25, 2012. Dr. Md. Waliar Rahman Course leader of Finanial Management

Sub: FINANCIAL MANAGEMENT & DEVELOPMENT OF ORGANIZATION

Dear Sir, I am pleased to enclose my above subject assignment as desired by you. I tried to give some solution as required this problem according my label best.

If you need any clarification please let me know.

Sincerely,

Md. Moklesur Rahman

1. INTRODUCTION: Financial Management can be defined as: The management of the finances of a business / organization in order to achieve financial objectives. In the process of energy management, at some stage, investment would be required for reducing the energy consumption of a process or utility. Investment would be required for modifications/retrofitting and for incorporating new technology. It would be prudent to adopt a systematic approach for merit rating of the different investment options vis-à-vis the anticipated savings. It is essential to identify the benefits of the proposed measure with reference to not only energy savings but also other associated benefits such as increased productivity, improved product quality etc.

The cost involved in the proposed measure should be captured in totality viz. •	Direct project cost •	Additional operations and maintenance cost •	Training of personnel on new technology etc.

1.1	Financial Management: The planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization. Financial management is the application of the planning & control functions of the finance function

1.2 Objective Taking a commercial business as the most common organizational structure, the key objectives of financial management would be to: •	Create wealth for the business •	Generate cash, and •	Provide an adequate return on investment bearing in mind the risks that the business is taking and the resources invested

1.3 Methodology The data sources that I have used in this assignment are both primary data and secondary data. But maximum data has used in this assignment by collecting from primary source observation of various section. Individual experience and job related training area also has been a great source of information. For collecting secondary data I have searched web site, some books, and report etc.

1.4 Scope I have tried to gather as much information as possible to illustrate a clear-cut image and also the value of the communicate function for the garment industries.

1.5 Limitation I have tried my best to make the assignment complete and successful. But while conducting the assignment, I can face many problems. The major limitations are presented briefly below: •	Conservativeness: When I talked with the merchandiser of the company to gather information regarding my report they didn’t reveal many sensitive issues. They tried to avoid answering many questions. •	Time stress: As we know that communication System of merchandiser is very big part of garments industry but against this big part few months is very short time to learn .So it was really hard for me to know about every part of communication system of merchandiser and make a complete Report. •	Lack of experience: The work of collecting the information requires much experience. But I had very little experience in this work field. 2. IDEA AND CONCEPT: New nonprofit leaders and managers have to develop at least basic skills in financial management. Expecting others in the organization to manage finances is clearly asking for trouble. Basic skills in financial management start in the critical areas of cash management and bookkeeping, which should be done according to certain financial controls to ensure integrity in the bookkeeping process. New leaders and managers should soon go on to learn how to generate financial statements (from bookkeeping journals) and analyze those statements to really understand the financial condition of the business. Financial analysis shows the "reality" of the situation of a business -- seen as such; financial management is one of the most important practices in management. This topic will help you understand basic practices in financial management, and build the basic systems and practices needed in a healthy business. 2.1 Idea about Financial Management: Financial management is that managerial activity which is concerned with the planning and controlling of the firm's financial resources. Planning, directing, monitoring, organizing and controlling of the monetary resources of an organization. There are 3 important decisions involved. •	Financing or where do u get money from. •	Investing or where do we allocate funds. •	Dividend or how much to distribute and what to retain.

The present age is the age of industrialization. Large industries are being established in every country. It is very necessary to arrange finance for building, plant and working capital, etc. for the established of these industries. How much of capital will be required, from what sources this much of finance will be collected and how will it be invested, is the matter of financial management.

Financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources.

It was a branch of economics till 1890, and as a separate discipline, it is of recent origin. Still, it has no unique body of knowledge of its own, and draws heavily on economics for its theoretical concepts even today.

In general financial management is the effective & efficient utilization of financial resources. It means creating balance among financial planning, procurement of funds, profit administration & sources of funds.

2.2 Definition of Financial Management: •	According to Solomon, “Financial management is concerned with the efficient use of an important economic resource, namely, capital funds.” •	According to J. L. Massie, “Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operation.” •	According to Weston & Brigham, “Financial management is an area of financial decision making harmonizing individual motives & enterprise goals.” •	According to J. F. Bradley, “Financial management is the area of business management devoted to the judicious use of capital & careful selection of sources of capital in order to enable a spending unit to move in the direction of reaching its goals.”

2.3 Features of Financial Management: On the basis of the above definitions, the following are the main characteristics of the financial management- •	Analytical Thinking-Under financial management financial problems are analyzed and considered. Study of trend of actual figures is made and ratio analysis is done. •	Continuous Process-previously financial management was required rarely but now the financial manager remains busy throughout the year. •	Basis of Managerial Decisions- All managerial decisions relating to finance are taken after considering the report prepared by the finance manager. The financial management is the base of managerial decisions. •	Maintaining Balance between Risk and Profitability-Larger the risk in the business larger is the expectation of profits. Financial management maintains balance between the risk and profitability. •	Coordination between Process- There is always a coordination between various processed of the business. •	Centralized Nature- Financial management is of a centralized nature. Other activities can be decentralized but there is only one department for financial management.

2.4 Objects of Financial Management: The financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be- •	To ensure regular and adequate supply of funds to the concern. •	To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders? •	To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost. •	To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved. •	To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital

2.5 Functions of Financial Management: Finance functions-both exe The objectives or goals or financial management are- (a) Profit maximization, (b) Return maximization, and (c) Wealth maximization. We shall explain these three goals of financial management as under: •	Goal of Profit maximization. Maximization of profits is generally regarded as the main objective of a business enterprise. Each company collects its finance by way of issue of shares to the public. Investors in shares purchase these shares in the hope of getting medium profits from the company as dividend It is possible only when the company's goal is to earn maximum profits out of its available resources. If company fails to distribute higher dividend, the people will not be keen to invest their money in such firm and persons who have already invested will like to sell their stocks. On the other hand, higher profits are the barometer of its efficiency on all fronts, i.e., production, sales an management. A few replace the goal of 'maximization of profits' to 'fair profits'. 'Fair Profits' means general rate of profit earned by similar organization in a particular area. •	Goal of Return Maximization. The second goal of financial management is to safeguard the economic interest of the persons who are directly or indirectly connected with the company, i.e., shareholders, creditors and employees. The all such interested parties must get the maximum return for their contributions. But this is possible only when the company earns higher profits or sufficient profits to discharge its obligations to them. Therefore, the goal of maximization of returns is inter-related. •	Goal of Wealth Maximization. Frequently, Maximization of profits is regarded a the proper objective of the firm but it is not as inclusive a goal as that of maximizing it value to its shareholders. Value is represented by the market price of the ordinary share of the company over the long run which is certainly a reflection of company's investment and financing decisions. The log run means a considerably long period in order to work out a normalized market price. The management ca make decision to maximize the value of its shares on the basis of day-today fluctuations in the market price in order t raise the market price of shares over the short run at the expense of the long fun by temporarily diverting some of its funds to some other accounts or by cutting some of its expenditure to the minimum at the cost of future profits. This does not reflect the true worth of the share because it will result in the fall of the share price in the market in the long run. It is, therefore, the goal of the financial management to ensure its shareholders that the value of their shares will be maximized in the long-run. In fact, the performances of the company can well be evaluated by the value of its share captive and incidental-are there in an organization to achieve certain financial objectives.

Management is not an art that can be broken down into compartments each separate and unrelated to the others. Personnel management is not unrelated to marketing management or production management. Some common problems such as price, product design, inventory, taxation, etc. affect all divisions of management. So, the finical problems are very important problems which affect the efficiency of all other branches of management. In a very small business, one-man may b the proprietor may make all the management decisions including financial policies. However in large businesses, a Division of responsibility and the compartmentalization of management are necessary to handle the large volume of work. Finance is one of the most important functions of management requiring skill and technical expertise knowledge. In big business, a separate department for the purpose is established under the charge of an expert in financial matter known as Finance Manager or Finance Controller or Director of Finance. Organization of finance department means the division and the classification of various functions which are to be performed by the finance department. Finance is one of the most important functions of the management. Financial decisions affect wage policy, inventory policy, labor policy and every other area of decision making. The reverse is also true. Management decisions are made at every level of business organization from president to foreman and nearly every management decision involves the finance of the company. The nature of finance is so peculiar that it may even affect the very existence of the concern and therefore the finance function cannot be decentralized like other management functions such as labor, marketing etc. The control and administration of finance, there-fore, should be made by the top management. Such controlling and administrative powers may vest in the Board of directors or in the Finance Committee. Virtually, the stockholders are the owners of the corporations and control the conduct of the company by electing the Board or Directors, to whom the management is responsible. The board o directors conducts the affairs of the company by formulating policies and gets those policies executed with the help of the managing director who manages the affairs of the company as per directions of the board. As the managing director is not supposed to be expert of all the matters-labor, market, finance, production etc.-relating to the business, a committee for each function-requiring expert knowledge-may be constituted for proper guidance and advice. In this process, a finance committee may be constituted to advice the managing director regarding matters relating to finance of the concern. One of two directors from the board of directors, the departmental heads and the chief financial manger constitute the committee. The managing director is the chairman of the committee. The committee guides and advises the board of directors regarding the control and administration of his finance. Generally chief financial manger is appointed to look after the activities of the finance department. There are two subordinate officers to the financial manger-the treasurer and the controller finance. The treasurer's responsibility is to look after the day to day working such as custody of cash and bank accounts, investment portfolio of the corporation, collection of loans, payments of loans, payments of premiums etc. Cash receipts and disbursements fall within his jurisdiction. The controller is the chief accounting officer of the company. In small company, they may have the help of only a few book keepers’ book-keepers but in a large concern, his authority may extend to several hundred employees organized into departments with such names as Accounts Receivable, accounts Payable, General Ledger, Internal Audit, Payroll, Tax, Credits and Collections, Budget etc. Approval of all Payments made by the treasurer is made by the controller to prevent unauthorized payments. He is responsible to the finance committee. The above forms cannot be said to be an ideal. It may change according to the size and the nature of the business. The external factors such as state intervention in the industrial finance, corporate tax policies etc. also affect the organization structure of the department. 2.6 Key Elements of Financial Management: There are three key elements to the process of financial management: 	Financial Planning Management need to ensure that enough funding is available at the right time to meet the needs of the business. In the short term, funding may be needed to invest in equipment and stocks, pay employees and fund sales made on credit. In the medium and long term, funding may be required for significant additions to the productive capacity of the business or to make acquisitions.

	Financial Control Financial control is a critically important activity to help the business ensure that the business is meeting its objectives. Financial control addresses questions such as: •	Are assets being used efficiently? •	Are the businesses assets secure? •	Does management act in the best interest of shareholders and in accordance with business rules?

	Financial Decision-making The key aspects of financial decision-making relate to investment, financing and dividends: Investments must be financed in some way – however there are always financing alternatives that can be considered. For example it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers. A key financing decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.

2.7 Responsibilities of Financial Management: The responsibilities of financial management or financial manger vary widely from one business unit to another, depending upon the size and the nation the light of this wide diversity of organizational practices, it is not surprising to find that in most of the company, financial officer is responsible for the routine finance functions. The main responsibilities of the financial officer are as follows:

Financial Planning: The main responsibility of the chief financial officer in a large concern is to forecast the needs and sources of finance and ensure the adequate supply cash at proper time for the smooth running of the business. He is to see that cash inflow and outflow must be uninterrupted and continuous. For this purpose, financial planning is necessary, i.e., he must decide the time when he needs money, the sources of supply of money and the investment patterns so that the company may meet its obligations properly and maintains its goodwill in the market. The financial manager is also to see that there is no surplus money in the business which earns nothing.

Raising of Necessary Funds: The second main responsibility of the financial officer is to see the nature of the need, i.e., whether finances are required for long-term or for short-term. He must assess the alternative sources of supply of finance taking into view the cost of raising funds, its effect on various concerned parties, i.e., shareholders, creditors, employees and the society, control and risk in financing and elasticity in capital structure etc.

Controlling the Use of Funds: The financial manager is also responsible for the proper utilization of funds. Assets must be used effectively so as to earn higher profits; inflow and outflow of cash must be controlled in a manner so as to meet the current as well as future obligations; unnecessary expenditure should be curtailed and there should be left no possibility for misappropriation of money.

Disposition of Profits: Appropriation of profits is one of the main responsibilities of the financial manger. He is to advise to the top executive as how much of the profits should be retained in the business as reserves for future expansion; how much to be used in repaying the debts; and how much to be distributed to the shareholders as dividend. On the basis of the advice given by the financial mange, the resolutions regarding depreciations, reserves, general reserves and distribution of dividends are carried out in the meeting of the board of directors of the company.

Other Responsibilities: Over and above, the responsibilities sated above, there are certain other responsibilities of the financial manger. These are: Responsibility to owners: Shareholders or stock-holders are the real owners of the concern. Financial manger has the prime responsibility to those who have committed funds to the enterprise. He should not only maintain the financial health of the enterprise, but should also help to produce a rate of earning that will reward the owners adequately for the risk capital they provide. Legal Obligations: Financial manager is also under an obligation to consider the enterprise in the light of its legal obligations. A host of laws, taxes and rules and regulations cover nearly every move and policy. Good financial management helps to develop a sound legal framework. Responsibilities of Employees: The financial management must try to produce a healthy going concern capable of maintaining regular employment at satisfactory rate of pay under favorable working conditions. The long term financial interests of management, employee’s owners are common. Responsibilities to Customers: In order to make the payments of its customers' bill, the effective financial management is necessary. Sound financial management ensures the creditors continued supply of raw material. Wealth Maximization: Prof. Solomon of Stanford University has argued that the main goal of the finance function is wealth maximization. The other goals may be achieved automatically.

In the light of the above discussion, we can conclude that the main responsibility of the financial manger is not only to maintain the financial health of the organization but also to increase the economic welfare of the shareholders by utilizing the funds in an effective manner.ure of the business.

2.8 Importance of Financial Management: Financial management importance can be explained as management of money matters. It deals with managing money in all areas of life. Financial management includes personal financial management and organizational financial management. Personal finance management will help you manage the finance of your home which includes budgeting, saving, investing, debt management and other aspects related to personal money where by an individual can achieve personal goals. Whereas organizational finance management means the management of finance of a business or organization in order to achieve financial objectives. In an organization the key objectives of financial management would be to create wealth for business, generate cash and gain maximum profits from the investments of the business considering the risks involved. Financial management is very important for both individuals and organizations because it deals with managing the funds. It guides a company and individual to make optimum use of money to achieve maximum returns. For an individual financial management will help to save more and thus invest more. Since in includes debt management, it will guide the individual to create a financial plan whereby all the debts are paid on time. It will help to spend less and earn more; this will lead to more savings and thus a secure future. Financial management will help in retirement and investment planning.

Lack of financial management in business will lead to losses and closure of business. With the study of financial management we can protect the business from miss management of money. Without proper financial management debts will not be paid in time and may make the businessman insolvent. Financial management will study the balance sheet of the company and keeps a watch on all sensitive facts that can endanger business into loss. It teaches us that we should think about cost, risk and control in any business and borrowed money must be minimum. It also explains the importance of time, risk and returns on investment. The return on investment must always be more than the cost of capital, risk investment should be least. We should get our money within a short period of time, all these facts are important for success of any business.

Financial management consists of several aspects of business where a finance manager makes decisions on the basis of the financial data with regards to allocating funds, financing business and to develop policies to achieve business goals. Different types of accounting tools are used to manage finance in any business. For example ratios are used to compare performance of the business periodically and also with other businesses. The profitability ratio measure the profit margin, return on assets and return on equity. The liquidity ratio measures the current ratio and quick ratio that provide information on the company’s ability to pay off debts. This ratio analysis enables the organization to compare and measure its performance. Financial management evaluates the performance of the business and keeps a check on the profitability aspect of the business.

The importance of financial management can be summarized as follows: 	It brings economic growth and development through investments, financing, and dividend and risk management decision which help companies to undertake better projects. 	When there is good growth and development of the economy it will ultimately improve the standard of living of all people. 	Improved standard of living will lead to good health and financial stress will reduce considerably. 	It enables the individual to take better financial decision which will reduce poverty, reduce debts and increase savings and investments. 	Better financial ability will lead to profitability which will create new jobs and in turn lead to more development, expansion and will promote efficiency.

In personal life, financial management helps us to create a comfortable life with an assurance of a secured future and freedom to spend money to make us happy. The importance of financial planning and management is reflected in all the areas of personal and business life, it must not be avoided. All individuals no matter what their financial capacity is must learn and study financial management and adapt it.

3. OBSERVATION: A project usually entails an investment for the initial cost of installation, called the capital cost, and a series of annual costs and/or cost savings (i.e. operating, energy, maintenance, etc.) throughout the life of the project. To assess project feasibility, all these present and future cash flows must be equated to a common basis. The problem with equating cash flows which occur at different times is that the value of money changes with time. The method by which these various cash flows are related is called discounting, or the present value concept.

For example, if money can be deposited in the bank at 10% interest, then a Rs.100 deposit will be worth Rs.110 in one year's time. Thus the Rs.110 in one year is a future value equivalent to the Rs.100 present value.

Financial Management Spending money on technical improvements for energy management cannot compensate for inadequate attention to gaining control over energy consumption. Therefore, before you make any investments, it is important to ensure that •	You are getting the best performance from existing plant and equipment •	Your energy charges are set at the lowest possible tariffs •	You are consuming the best energy forms – fuels or electricity – as efficiently as possible •	Good housekeeping practices are being regularly practiced.

When listing investment opportunities, the following criteria need to be considered: •	The energy consumption per unit of production of a plant or process •	The current state of repair and energy efficiency of the building design, plant and services, including controls •	The quality of the indoor environment – not just room temperatures but indoor air quality and air change rates, drafts, under and overheating including glare, etc. •	The effect of any proposed measure on staff attitudes and behavior. 3.1	Apply Financial Management and Development of Organization: In the context of business management process, financial resource provides a lifeline to the operations of a company. No business can run without an element of finance. It's the buying power of the companies that supports the other resources. Workforce which is the driving force has to be paid for in terms of staff wages and benefits. The workers have to be supplied with equipments, tools and machinery to perform their duties and these are bought through company finance. The day to day operations require a substantial amount of cash to provide any instruments, tools, equipments and other provisions for the smooth running of the operations. It's in this dimension that the financial resource has to be managed properly.

Ethical values that govern the use of financial resource are put in place and help in promoting sustainable use of cash. Accountability is a key requirement for the safe and satisfactory use of the company cash. The ethical code of conducts outlines a contingent of measures that must be taken to enable the company work within the limits of its expenditures. A sound management of company finance provides a platform for a business success. One thing however stands out, and this is that, no matter how the other resources are effectively and efficiently applied, without a concrete use of the monetary resource, the company would be dragged into financial pitfalls. The firm can't attain profitability without a well managed finance.

Financial ethics promote accountability in use of company finance. This is achieved through minimizing misappropriation of funds. There are immense subjects that need financial provisions within an organization. However, all cannot be financed and a prioritization plan has to be drawn. This separates the important needs from the urgent ones. From this perspective, the management can decide on which items to be purchased and the ones to be bought in the near future. Without a good framework of financial allocation, the staff can easily engage in an unplanned buying behavior often sending the company into financial difficulties. Misappropriation of funds can be defined as unprecedented and untimely use of company cash to finance expenditures which are not regarded as worthy, important and urgent as at the time of buying. It can also imply an unsatisfactory use of company monies for other purposes other than company's needs.

Ethical code of conduct creates a responsibility in the finance use. The accountants are mandated to provide a stringent disbursement of the cash for only the intended use. They work under guidelines set by the ethical code and should never operate outside the limits. The accounts workers are required to display an exceptional financial allocation discipline and this must be captivated from the inner-self. Often accounts employees handle a substantially large amount of company cash. With such amount in their hands, they may be tempted to channel some to settle out their most pressing personal financial needs. This could be very unethical and must never be witnessed within any employee in an organization. There must be a clear cut interest, of whatsoever kind, between the company cash and the employee.

Through the ethics guidelines, a healthy budgetary expenditure is promoted. The accounts employees work from a set budget which is drawn by the management. Unless otherwise ordered, the accounts staff should never make their own decision regarding the cash allocation which overlooks the budget decision. Usually financial plans are developed from the budget point of view. Budgets are the stepping stones for the financial management. The employees are the building blocks and the strength of the company finance resource is determined by the accounts ethics. Ethics provide a set of rules and regulations and financial use is governed by these guidelines. Through financial ethics, the rules and regulations are adhered to. A company that sets up and implements sound financial ethics often places itself in a competitive edge. Such ethics prevent the company from financial constraints. The debt profile of the company is scaled down. It prompts the creditors to pay their debts. It increases business profit margins. Employee satisfaction is enhanced as the staff financial needs are met.

3.2	Make Financial Statement and Profit quality: The income statement is a historical record of the trading of a business over a specific period (normally one year). It shows the profit or loss made by the business – which is the difference between the firm’s total income and its total costs. The income statement serves several important purposes: 	Allows shareholders/owners to see how the business has performed and whether it has made an acceptable profit (return) 	Helps identify whether the profit earned by the business is sustainable (“profit quality”) 	Enables comparison with other similar businesses (e.g. competitors) and the industry as a whole 	Allows providers of finance to see whether the business is able to generate sufficient profits to remain viable (in conjunction with the cash flow statement) 	Allows the directors of a company to satisfy their legal requirements to report on the financial record of the business

Profit quality: One of the issues to consider when looking at the income statement is to look at whether the reported profit is “high quality” or “low quality”. What is the difference? A high quality profit is one which can be repeated or sustained. In other words the profit does not contain any unusual one-off items of income or profit which shareholders cannot reasonably expect the business achieve in the following year.

A low quality profit is one which it is difficult to repeat. The profit is likely to benefit from one or more “exceptional items” which will not repeat. Examples of exceptional items include: 	One-off profits on selling major items of property, plant and equipment (e.g. selling a piece of land) 	Income from a significant insurance claim 	Profits from selling business units or brands 	Balance Sheet (overview): A balance sheet is a statement of the total assets and liabilities of an organization at a particular date - usually the last date of an accounting period. 	The balance sheet is split into two parts: A statement of fixed assets, current assets and the liabilities (sometimes referred to as "Net Assets"). A statement showing how the Net Assets have been financed, for example through share capital and retained profits. 	The Companies Act requires the balance sheet to be included in the published financial accounts of all limited companies. In reality, all other organizations that need to prepare accounting information for external users (e.g. charities, clubs, and partnerships) will also product a balance sheet since it is an important statement of the financial affairs of the organization. 	A balance sheet does not necessary "value" a company, since assets and liabilities are shown at "historical cost" and some intangible assets (e.g. brands, quality of management, market leadership) are not included.

Returns on investment objectives: The funds invested in a business need to earn a return. Ideally that return at least matches, and ideally exceeds, the target return set by management. The main performance measure of return in a commercial business is Return on Capital Employed (“ROCE”) - sometimes also referred to as Return on Capital.

ROCE is essentially about how well a business turns assets into profit. This matters for a business because of the concept of opportunity cost.

Faced with a choice of investing £500,000 in a new business project or giving it back to the shareholders as a dividend, what should the business do? If the project generates a return on investment of over 10%, then the shareholders would probably prefer the project to go ahead rather than receiving the dividend. It depends on what their required rate of return is. ROCE can be used in several ways: 	To help evaluate the overall performance of the business 	To provide a target return for individual projects 	To benchmark performance with competitors

Shareholders’ returns: A basic recap to begin with. Shareholders are the owners of a limited company and they gain their financial reward from share ownership in two ways: 	A share of the profits earned by the company – paid out as a dividend 	Growth in the value of their shareholding (compared with the cost of buying the shares) – which is “realized” when the shareholder sells the shares to someone else

The vast majority of limited companies are “private” in that their shares are not publicly traded on a regulated stock market. However, that does not stop the shareholders of private limited companies from buying and selling shares privately. Shareholders in public companies whose shares are traded on the Stock Exchange have a daily insight into the returns their investment is making: •	The share price indicates the market value of the business (share price x number of shares in issue) •	The latest share price can be shown as a multiple of the most recent annual earnings (or profits) per share, to show a valuation ratio known as the Price/Earnings (or P/E) ratio The latest annual dividend can be compared with the share price to indicate an annual return (“dividend yield”). The financial objectives that a public company might, therefore, set in relation to shareholder returns might include: •	Target growth in the share price •	Increases in the dividend per share over time

3.3	Functions of Development: Estimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future programmers and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise.

•	Determination of capital composition: Once the estimation have been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties. •	Choice of sources of funds: For additional funds to be procured, a company has many choices like- 	Issue of shares and debentures 	Loans to be taken from banks and financial institutions 	Public deposits to be drawn like in form of bonds. •	Choice of factor will depend on relative merits and demerits of each source and period of financing. •	Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible. •	Disposal of surplus: The net profits decision has to be made by the finance manager. This can be done in two ways: 	Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus. 	Retained profits - The volume has to be decided which will depend upon expansion, innovational, diversification plans of the company. •	Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintenance of enough stock, purchase of raw materials, etc. •	Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.

3.4 Budgets and Budgeting: A budget is a financial plan for the future concerning the revenues and costs of a business. However, a budget is about much more than just financial numbers. Budgetary control is the process by which financial control is exercised within an organization. Budgets for income/revenue and expenditure are prepared in advance and then compared with actual performance to establish any variances.

Managers are responsible for controllable costs within their budgets and are required to take remedial action if the adverse variances arise and they are considered excessive. There are many management uses for budgets. For example, budgets are used to: •	Control income and expenditure (the traditional use) •	Establish priorities and set targets in numerical terms •	Provide direction and co-ordination, so that business objectives can be turned into practical reality •	Assign responsibilities to budget holders (managers) and allocate resources •	Communicate targets from management to employees •	Motivate staff •	Improve efficiency •	Monitor performance

Whilst there are many uses of budgets, there are a set of guiding principles for good budgetary control in a business.

Limitations of budgets: Whilst budgets are widely used to in business, you should appreciate that they have some important limitations. In particular: Budgets are only as good as the data being used to create them. Inaccurate or unreasonable assumptions can quickly make a budget unrealistic •	Budgets can lead to inflexibility in decision-making •	Budgets need to be changed as circumstances change •	Budgeting is a time consuming process – in large businesses, whole departments are sometimes dedicated to budget setting and control •	Budgets can result in short term decisions to keep within the budget rather than the right long term decision which exceeds the budget •	Managers can become too preoccupied with setting and reviewing budgets and forgetting to focus on the real issues of winning customers

Budgets can also create some behavioral challenges in a business •	Budgeting has behavioral implications for the motivation employees •	Budgets are de-motivating if they are imposed rather than negotiated •	Setting unrealistic targets adds to de-motivation •	Budgets contribute to departmental rivalry - battles over budget allocation •	Spending up to budget: it can result in a “use it or lose it” mentality - spend up to the budget to preserve it for next year •	Budgetary slack occurs if targets are set too low •	A “name, blame and shame” culture can develop - but managers should be answerable only for variations that were under their control •	Main ratios (introduction) •	In our introduction to interpreting financial information we identified five main areas for investigation of accounting information. The use of ratio analysis in each of these areas is introduced below: •	Profitability Ratios

In an effective budget system: •	Managerial responsibilities are clearly defined – in particular the responsibility to adhere to their budgets •	Individual budgets lay down a plan of action •	Performance is monitored against the budget •	Corrective action is taken if results differ significantly from the budget •	Departures from budgets are permitted only after approval from senior management •	Unaccounted for variances are investigated •	Earnings per share

3.5	Improving importance of Financial Management: In a big organization, the general manger or the managing director is the overall in charge of the organization but he gets all the activities done by delegating all or some of his powers to men in the middle or lower management, who are supposed to be specialists if or example, management and control of production may be delegated to a man who is specialist in the techniques, procedures, and methods of production. We may designate him “Production Manager'. So is the case with other branches of management, i.e., personnel, finance, sales etc.

The in charge of the finance department may be called financial manger, finance controller, or director of finance who is responsible for the procurement and proper utilization of finance in the business and for maintaining co-ordination between all other branches of management.

Importance of finance cannot be over-emphasized. It is, indeed, the key to successful business operations. Without proper administration of finance, no business enterprise can reach its full potentials for growth and success. Money is a universal lubricant which keeps the enterprise dynamic-develops product, keeps men and machines at work, encourages management to make progress and creates values. The importance of financial administration can be discussed under the following heads:-

(i) Success of Promotion Depends on Financial Administration. One of the most important reasons of failures of business promotions is a defective financial plan. If the plan adopted fails to provide sufficient capital to meet the requirement of fixed and fluctuating capital an particularly, the latter, or it fails to assume the obligations by the corporations without establishing earning power, the business cannot be carried on successfully. Hence sound financial plan is very necessary for the success of business enterprise.

(ii) Smooth Running of an Enterprise. Sound financial planning is necessary for the smooth running of an enterprise. Money is to an enterprise, what oil is to an engine. As, Finance is required at each stage f an enterprise, i.e., promotion, incorporation, development, expansion and administration of day-to-day working etc., proper administration of finance is very necessary. Proper financial administration means the study, analysis and evaluation of all financial problems to be faced by the management and to take proper decision with reference to the present circumstances in regard to the procurement and utilization of funds.

(iii) Financial Administration Co-ordinates Various Functional Activities. Financial administration provides complete co-ordination between various functional areas such as marketing, production etc. to achieve the organizational goals. If financial management is defective, the efficiency of all other departments can, in no way, be maintained. For example, it is very necessary for the finance-department to provide finance for the purchase of raw materials and meting the other day-to-day expenses for the smooth running of the production unit. If financial department fails in its obligations, the Production and the sales will suffer and consequently, the income of the concern and the rate of profit on investment will also suffer. Thus Financial administration occupies a central place in the business organization which controls and co-ordinates all other activities in the concern.

(iv) Focal Point of Decision Making. Almost, every decision in the business is taking in the light of its profitability. Financial administration provides scientific analysis of all facts and figures through various financial tools, such as different financial statements, budgets etc., which help in evaluating the profitability of the plan in the given circumstances, so that a proper decision can be taken to minimize the risk involved in the plan. (v) Determinant of Business Success. It has been recognized, even in India that the financial manger splay a very important role in the success of business organization by advising the top management the solutions of the various financial problems as experts. They present important facts and figures regarding financial position and the performance of various functions of the company in a given period before the top management in such a way so as to make it easier for the top management to evaluate the progress of the company to amend suitably the principles and policies of the company. The financial manages assist the top management in its decision making process by suggesting the best possible alternative out of the various alternatives of the problem available. Hence, financial management helps the management at different level in taking financial decisions.

(vi) Measure of Performance. The performance of the firm can be measured by its financial results; i.e., by its size of earnings Riskiness and profitability are two major factors which jointly determine the value of the concern. Financial decisions which increase risks will decrease the value of the firm and on the to the hand, financial decisions which increase the profitability will increase value of the firm. Risk an profitability are two essential ingredients of a business concern.

3.6	Develop and Maintain of Financial management: •	Develop and implement the organization’s budget to achieve organizational objectives. •	Establish internal controls for cash management. •	Implement and maintain a process for external financial audits. •	Develop and implement revenue cycle management and accounts receivable management. •	Analyze and monitor financial performance and report financial results to stakeholders. •	Direct the payroll process. •	Establish and maintain the organization’s banking, investment and other financial relationships. •	Develop relationships with individual insurance carriers to optimize contract negotiations and maintenance of existing contracts.