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Introduction to Financial Management

Financial Management refers to the total managerial effort for the management of sources and uses of the financial activities of the enterprises.

 

Financial Management is a specialised function of general management which is related to the procurement of finance and its effective utilisation for the fulfilment of common goal of the enterprises.

 

Some of the definitions are being reproduced below.

  1. “Financial management is the operational activity of a business that is responsible for obtaining and effectively utilising the funds necessary for efficient operations”.

-Joseph and Massie

  1. “Financial management is the application of the planning and control functions to

the finance function”.

-Howard and Apon

 

From the above definition it is clear that financial management is rendering a specialized service to the business in the way of obtaining and effective utilisation of the funds. Apart from  this it also concentrates on financial planning, financial administration and financial control.

 

 

CHARACTERISTICS OF FINANCIAL MANAGEMENT

 

1. Financial management is a branch of business management.

2. It is an authentic and analytical process.

3. Centralised administration

4. A measuring tool of performance

5. It is essential for the management decisions.

6. Determination of Borrowing Policy

7. Key position in the organisational structure

8. Determination of future cash requirements

 

 

IMPORTANCE OF FINANCIAL MANAGEMENT

 

Adequate finance is very much essential for the success of all the business concerns. A firm could not expand its business or at least for the survival purpose it should need sufficient

amount of finance.

The following are the important areas which highlight the importance of financial .

management.

 

ACCOUNTING FOR MANAGEMENT

 

(i) It provides an easy approach to capital budgeting.

(ii) Promotional activities of the business organisation.

(iii) Financial management for optimum use of firm.

(iv) To obtain co-operation in business activities.

(v) Guidance to shareholders and investors.

(vi) Determinant of business success.

(vii) It is useful for minimising risks.

(viii) It has long period values and profit maximisation.

(ix) Helps to estimate the total requirements of funds.

(x) Profit Planning.

(xi) Controlling inventories.

 

 

OBJECTIVES AND FUNCTIONS OF FINANCIA MANAGEMENT

 

Objectives of the financial management are listed below.

(i) Maintenance of liquid assets

(ii) Maximisation of the profitability of the firm

(iii) Internal resources for expansion

(iv) Determining financial needs

(v) Project planning evaluation

(vi) Decision on capital budgeting

(vii) Working capital management decisions

(viii) Acquisition and mergers

(ix) Ensuring fair return to the share holders

(x) Establishment of reserves for growth and expansion