1) What is Time Value of Money?

The time value of money (TVM) is the concept that money you have now is worth more than the
identical sum in the future due to its potential earning capacity. This core principle of finance
holds that provided money can earn interest, any amount of money is worth more the sooner it is
received. TVM is also sometimes referred to as present discounted value.

2) What is Financial Management?

Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying
general management principles to financial resources of the enterprise.

Importance of Financial Management:

 Helps organisations in financial planning;

 Assists organisations in the planning and acquisition of funds;
 Helps organisations in effectively utilising and allocating the funds received or acquired;
 Assists organisations in making critical financial decisions;
 Helps in improving the profitability of organisations;
 Increases the overall value of the firms or organisations;
 Provides economic stability;
 Encourages employees to save money, which helps them in personal financial planning.

3) Scope/Elements of Financial Management:

Investment decisions includes investment in fixed assets (called as capital budgeting).
Investment in current assets are also a part of investment decisions called as working capital
decisions.
Financial decisions - They relate to the raising of finance from various resources which will
depend upon decision on type of source, period of financing, cost of financing and the returns
thereby.
Dividend decision - The finance manager has to take decision with regards to the net profit
distribution. Net profits are generally divided into two:
Dividend for shareholders- Dividend and the rate of it has to be decided.
Retained profits- Amount of retained profits has to be finalized which will depend upon
expansion and diversification plans of the enterprise.

4) Objectives 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.

5) Functions of Financial Management:

1. 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 programmes and policies of a concern. Estimations have to be
made in an adequate manner which increases earning capacity of enterprise.
2. 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.
3. Choice of sources of funds: For additional funds to be procured, a company has many
choices like-
a. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. 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.

4. 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.
5. Disposal of surplus: The net profits decision have to be made by the finance manager.
This can be done in two ways:
a. Dividend declaration - It includes identifying the rate of dividends and other
benefits like bonus.
b. Retained profits - The volume has to be decided which will depend upon
expansion, innovational, diversification plans of the company.
6. 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.
7. 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.
6) Role of Financial Management:

 Financial decisions and controls: 

Financial management and financial managers play a crucial role in making financial
decisions and exercising control over finances in the organization. They make use of
techniques like ratio analysis, financial forecasting, profit and loss analysis, etc.
 
 Financial Planning:
The finance managers are responsible for the planning of financial activities and resources
in the organization. To this end, they use available data to understand the needs and
priorities of the organization as well as the overall economic situation and make plans and
budgets for the same.

 Capital Management:
It is the responsibility of financial management to estimate the capital requirements of the
organization from time to time, determines the capital structure and composition and
makes the choice of source of funding for the capital needs.
 
 Allocation and Utilization of financial resources:
Financial management ensures that all financial resources of the organizations are used
and invested effectively and efficiently so that the organization is profitable, sustainable
and viable in the long-run.
 
 Cash Flow Management:
It is extremely important for organizations to have sufficient working capital and cash
flow to meet their operational expenses and emergencies. Financial management tracks
account payable and receivable to ensure there is sufficient cash flow available at all
times.
 
 Disposal of Surplus:
The decisions on how the surplus or profits of the organizations is utilized is taken by the
financial managers of the organizations. They decide if dividends should be distributed
and how much as well as the proportion of profits that must be retained and ploughed back
into the business.
 
 Financial Reporting:
Financial management maintains all necessary reports related to the finance of the
organization and uses this as the database for forecasting and planning financial activities.

7) What Is Investment Analysis?

Investment analysis is a broad term for many different methods of evaluating investments,
industry sectors, and economic trends. It can include charting past returns to predict future
performance, selecting the type of investment that best suits an investor's needs, or evaluating
individual securities such as stocks and bonds to determine their risks, yield potential, or price
movements.

8) What is Capital Budgeting?

C apital budgeting  is a process that helps in planning the investment projects of an
organization in long run. It takes all possible consideration into account so that the
company can evaluate the profitability of the project. It is useful for evaluating capital
investment project such as purchasing equipment, the rebuilding of equipment etc. The
benefit from an investment may be in form of a reduction in cost or in form of increased
revenue. Importance of capital budgeting  can be understood from its impact on the
business.

Businesses exist to earn profit except for non-profit organization. Capital budgeting is
very important for any business as it impacts the growth & prosperity of the business in
the long term. It creates accountability & measurability. Some of the popular techniques
are net present value , internal rate of return , payback period , accounting  rate of
return & profitability index .

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