Functions of Financial Management : Capital Budgeting

In Chapter 1 of "Financial Management: An Introduction to Managing Finances in India," we delve into the meaning and evolution of financial management, with a specific focus on its significance within the Indian context.
We begin by introducing the concept of financial management, which involves strategically managing financial resources to achieve organizational or individual goals. This encompasses decision-making processes related to investments, financing, and dividend distribution. We explore the two primary objectives of financial management, namely wealth maximization and profit maximization, and examine their distinctions.
Next, we discuss the evolution of financial management over time. In the past, financial decisions were often based on limited information and intuition. However, with technological advancements, globalization, and the increasing complexity of financial markets, financial management has become more sophisticated and data-driven. We highlight the modern techniques and tools employed in financial management today.
Shifting our focus to financial management in India, we explore its critical role in both corporate and individual spheres. The financial landscape in India encompasses various stakeholders, including the government, corporations, and individuals. We emphasize the impact of the regulatory framework, overseen by institutions such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), on financial decision-making.
We then delve into the essential functions of financial management, including financial planning, capital budgeting, capital structure decisions, working capital management, and dividend policy. Each function is explained in the context of its significance in managing finances effectively.
Additionally, we shed light on the pivotal role financial managers play in organizations. They are responsible for financial planning, analysis, and decision-making processes. We highlight the key skills and qualifications required for financial management positions and underscore the significance of a strong understanding of the regulatory environment.
Finally, we provide a summary of the chapter, highlighting the key concepts covered. We conclude with a set of exercises to reinforce understanding, enabling readers to apply the principles of financial management to real-world scenarios.
By the end of this chapter, readers will have gained a comprehensive understanding of the meaning and evolution of financial management, its relevance in the Indian context, the functions it encompasses, and the role of financial managers in driving effective financial decision-making.
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