Application of Financial Management in Joint Stock Companies

What is the application of financial management in joint stock companies? Please explain in details.

Abrar from Bahrain ( Dated : 5/23/2014 )

We all know Financial Management provides all the advance techniques for efficient use of any organisation capital fund. In joint stock company, all capital is not of one person. It is collected from large number of shareholders who buys the shares and invest their money in the company. All want to increase the value of their shares. All want to get highest return on their invested capital in the company. How will it be possible? All these things can easily be possible by effective use of financial management. We are explaining following points where financial management can be used in joint stock company.

1. Get Fund at Low Risk, Low Cost and Without Compromising Control on Company 

Financial management can easily be used for getting fund at low risk, low cost and without compromising control on company.  For this, finance manager will plan best capital structure of company by optimizing it. Second, finance manager will also measure the cost of capital for finding which source of capital will be cheap in current situation. For reducing the risk, finance manager has to use leverage technique.

2. Use the Fund Like an Intelligent and Smart Finance Manager 

If you have learned financial management and want to use it. You should learn to use your capital fund effective ways. One company invest all his money in one project and within a year, it finds that all capital fund became zero. So, now, shareholders can weep only. But, you are so smart and intelligent finance manager and in the home of financial manager. You will not waste your capital fund. You will do investment decisions on the basis of capital budgeting. Through capital budgeting, you will find, in which investment project, you will get highest return at current time.

3. Application of Financial Management for Proper Use of Working Capital

Not just equity capital or debt, financial management will help you to proper use of your working capital. For stopping wastage of working capital, you can easily calculate optimum working capital. You can also use your investment in working capital effective way. Instead of falling down in well like a mad person, you will forecast your working capital in advance before distrubing the work due to money problem in current time.