Essay, Term Paper

Topics: Finance, Corporate finance, Investment Pages: 10 (2629 words) Published: March 11, 2014
Financial Management

Meaning, Objective, Scope and Importance of Financial Management

Finance is regarded as the life blood of a business enterprise. This is because in the modern money oriented economy, finance is one of the basic foundations of all kinds of economic activities. It is the master key which provides access to all the resources for being employed in manufacturing and merchandising activities. It has rightly been said that business needs money to make more money. However, it is also true that money begets more money, only when it is properly managed. Hence, efficient management of every business enterprise is closely linked with efficient management of its finances.

Meaning of Finance and Business Finance:

In general finance may be defined as the provision of money at the time it is wanted, The Encyclopedia Britannica conveys the idea of finance in he following words: Finance is the act of providing the means of payment.

However, as a management function it has a special meaning. Finance function may be defined as the procurement of funds and their effective utilization.

Business finance means, finance required for promoting and running trade, commerce or industrial undertakings. Business finance can broadly be defined as the activity concerned with planning, raising, controlling and administering of the funds used in the business.

The business finance mainly involves, raising of funds and their effective utilization keeping in view the overall objectives of the firm.

Financial Management:

Financial management is that managerial activity which is concerned with the planning and controlling of the firms financial resources to achieve the overall objectives of the firm. The management makes use of various financial techniques, devices for planning administering and controlling the financial affairs of the firm in the most effective and efficient way. Financial management, therefore, means the entire gamut of managerial efforts devoted to the management of finance both its sources and uses of the enterprise.

According to Solomon, “Financial management is concerned with the efficient use of an important economic resource, namely capital funds”.

Accounting to phillippatus “ Financial management is concerned with the managerial decisions that results in the acquisition and financing of long term and short term credits for the firm. As such it deals with the situations that require selection of specific assets (or combination of assets), the selection of specific liability (or combination of liabilities) as well as the problem of size and growth of the enterprise. The analysis of these decisions is based on the expected inflows and outflows of funds and their effects upon managerial objectives”. Thus, financial management is mainly concerned with the proper management of funds. The finance manager must see that funds are procured in a manner that the risk, cost, and control considerations are properly balanced in a given situation and there is optimum utilization of funs.

Objectives of Financial Management:

Traditionally, the basic objectives of financial management are the maintenance of liquid assets and maximization of the profitability of the firm.

Maintenance of liquid assets means that the firm has adequate cash in hand to meet its obligations at all times. A business firm is a profit- seeking organization. Hence, profit maximization is all well considered to be an important objective of financial management. However, the concept of profit maximization has come under severe criticism in recent time on account of the following reasons:

It is Vague:

It does not clarify what exactly does it mean. For example, which profits are to be maximized, short- run or long run, rate of profit or the amount of profit?

It Ignores the Timing of Returns:

The profit maximization objective does not make a distinction between returns received in different time...
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