Prime Objectives:-
- Maximization of wealth of organization and owner.
- Valuation of all the financial instruments so as to correctly assess the vale of the organizaton
- Enables wise and profitable decision making
- It considers careful selection of sources of capital for meeting long term financial requirements of the organization.
Approaches
Traditional Approach:- Procurement and allotment of funds in an organization
Modern Approach:-
- Sourcing of finance:- Long-term and short-term financing.
- Deployment of finance:-Investment decisions for long-term and short-term.
- Strategic Decision:-Dividend decisions,mergers and acquisition.
Terms to Remember:-
- Working Capital Management:- The convertible short term assets which could be converted into cash within one year of period is called working capital. For example cash,inventory,accounts receivable etc. It measures company's liquidity. Managing this aspect of company comes under working capital management.
Working capital = Current asset-Current liabilities
(WCR) Working capital ratio = Current assest/Current liabilities
The higher the ratio the better is the company's liquidity.
- Capital Budgeting:- It refers to the long term projects or investments which yields the returns after long term,mostly after one year. It deals with setting up a plant, accepting projects being offered,installing big machines,expenditure in R&D etc.
- How much money to be raised ?and sources
- The degree of risk is to be assessed
- Time and amount of return
