Please enable JavaScript.
Coggle requires JavaScript to display documents.
FINANCIAL MANAGEMENT (Nature, Significance, and Scope of Financial
…
FINANCIAL MANAGEMENT
Nature, Significance, and Scope of Financial
Management
Financial management is an organic function of any business. Any organization needs finances to obtain physical resources, carry out the production activities and other business operations, pay compensation to the suppliers, etc. There are many theories around financial management:
Some experts believe that financial management is all about providing funds needed by a business on terms that are most favorable, keeping its objectives in mind. Therefore, this approach concerns primarily with the procurement of funds which may include instruments, institutions, and practices to raise funds. It also takes care of the legal and accounting relationship between an enterprise and its source of funds.
Another set of experts believe that finance is all about cash. Since all business transactions involve cash, directly or indirectly, finance is concerned with everything done by the business.
The third and more widely accepted point of view is that financial management includes the procurement of funds and their effective utilization. For example, in the case of a manufacturing company, financial management must ensure that funds are available for installing the production plant and machinery. Further, it must also ensure that the profits adequately compensate the costs and risks borne by the business.
Financing Decisions: Managers also make decisions pertaining to raising finance from long-term sources (called Capital Structure) and short-term sources (called Working Capital). They are of two types:
Financial Planning decisions which relate to estimating the sources and application of funds. It means pre-estimating financial needs of an organization to ensure the availability of adequate finance. The primary objective of financial planning is to plan and ensure that the funds are available as and when required.
Capital Structure decisions which involve identifying sources of funds. They also involve decisions with respect to choosing external sources like issuing shares, bonds, borrowing from banks or internal sources like retained earnings for raising funds.
-
The introduction to financial management also requires you to understand the scope of financial management.
It is important that financial decisions take care of the shareholders‘ interests.
Further, they are upheld by the maximization of the wealth of the shareholders, which depends on the increase in net worth,
capital invested in the business, and plowed-back profits for the growth and prosperity of the organization.
-
-
-
WHAT IS FINANCIAL MANAGEMENT?
Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.
“Financial management is the activity concerned with planning, raising, controlling and administering of funds used in the business.” – Guthman and Dougal
“Financial management is that area of business management devoted to a judicious use of capital and a careful selection of the source of capital in order to enable a spending unit to move in the direction of reaching the goals.” – J.F. Brandley
-
-
