Basics of Financial Management – Part 2

Financial management studies the financial operations carried on by a business organization from the time of its very inception to its maturity, growth, stability, and expansion. It analyzes the financial implications involved in the promotion of corporate enterprises. It also assists in scanning the financial plans of new and established business units. It further examines the nature, extent, and form of the capital required by a company. Business finance – an important wing of financial management – scrutinizes the practices and policies of administering corporate income. It looks into the dividend, depreciation, and reserve policies adopted by various business organizations.

It studies the nature and importance of financial assistance rendered to business enterprises by the different financial institutions such as issue houses, investment bankers, underwriting firms, banks, insurance companies, industrial banks, investment companies, holding companies, stock exchanges, development and financial corporations. It also examines the government policy in regulating and controlling the financial practices and policies of business organizations.

Each business organization is required to set its financial objectives and goals and prepare a set of financial statements and the Profit and Loss Account. In addition to these two, some other statements may be prepared so as to suit the needs of the management of each business entity. Now, the question arises as to whether it is mandatory to prepare these financial statements.

As far as the joint stock companies are concerned, they enjoy no choice whatsoever in this regard. Every company – irrespective of being public limited or private limited – is required to prepare these financial statements. There exists a set of provisions which lays down the form and manner in which these statements are to be prepared, the time limit within which these statements are to be submitted and so on. Any non-compliance or contravention of these provisions attracts severe penal consequences.