Financial management

Assignment 5

Q. Today's financial managers are seized with the problem of financial distress and are
trying to overcome it by innovative means.

Answer:
In the present scenario, financial managers are no longer concerned with the problem of financial distress,
rather they have broadened their outlook and are looking for some innovative means to prevent or atleast
overcome such a situation.

With the increase in complexity of modern business situation, the role of financemanager is not just confined to
procurement of funds, but this era of functioning is extended to judicious and efficient use of funds available to
the firm, keeping inview the objectives of the firm and expectations of the providers of funds.In a view
of modern approach, the finance manager is expected to analyze the firmand to determine the following:
a) The total funds requirement of the firm
b) The assets to be acquired
c) The pattern of financial asset

The finance manager of a modern business firm will generally involve in thefollowing three types of
decisions

1.Investment Decision: Investment decisions are those which determine how scarce resources interms of
funds are available are committed to the projects.The investment decisions of a finance manager cover the
following areas

Ascertainment of total volume of funds, a firm can commit.

Appraisal and selection of capital investment proposals.
Measurement of risk and uncertainty in the investment proposals
Prioritisation of investment decisions.
Funds allocation and its rationing
Determination of fixed assets to be acquired
By or lease decisions
Asset replacement decisions
Restructuring, Reorganisation, Mergers and Acquisitions
Securities Analysis and Portfolio Management etc

IMPORTANT FUNCTIONS OF THE FINANCIAL MANAGER:

The important function of the financial manager in a modern businessconsists of the following:

1.Provision of capital: To establish and execute programmes for the provision of capital required by the
business.
2.Investor relations: to establish and maintain an adequate market for thecompany securities and
to maintain adequate liaison with investment bankers, financial analysis and share holders.

3.Short term financing: To maintain adequate sources for companyscurrent borrowing from commercial
banks and other lending institutions.

4.Banking and Custody: To maintain banking arrangement, to receive, hascustody of accounts

.5.Credit and collections: to direct the granting of credit and the collectionof accounts due to the company
including the supervision of requiredarrangements for financing sales such as time payment and
leasing plans.

6.Investments: to achieve the companys funds as required and toestablish and co-ordinate policies for
investment in pension and other similar trusts.

7.Insurance: to provide insurance coverage as required.

8.Planning for control: To establish, co-ordinate and administer anadequate plan for the control of
operations.

9.Reporting and interpreting: To compare information with operating plansand standards and to report and
interpret the results of operations to alllevels of management and to the owners of the business.

10. Evaluating and consulting: To consult with all the segments of management responsible for policy or
action concerning any phase of the operation of the business as it relates to the attainment of objectives
and the effectiveness of policies, organization structure an procedures.

11.Tax administration: to establish and administer tax policies and procedures.

12. Government reporting: To supervise or co-ordinate the preparation of reports to government agencies.

13. Protection of assets: To ensure protection of assets for the businessthrough internal control, internal
auditing and proper insurancecoverage

Some of the popular methods deployed by financial managers in this context are:-

Deep Discount Bonds (DDB)

Zero Coupon Bonds (ZCB)

Convertible bonds

Indexed bonds

Bonds with option

Government Securities (G Sec)

Treasury Bill (T Bills)

 Factoring

Derivatives

Financial restructuring techniques

To combat the adverse impact caused by financial distress of organisation which find it difficult to
honour its obligations, the aforementioned methods are popularly used.

These help the financial managers to a great extent to effectively overcome such situations of financial
distress

Submitted by;

Vipul jain

BBA 5B

01121701714