Financial Management means planning, organizing, directing and controlling the financial activities in such a manner as to accomplish the objectives of the organization. In simple words, one can say applying general management principles to financial resources of the enterprise. This particular topic will help you understand basic practices in financial management and how to raise the capital and how to allocate it (i.e. capital budgeting). According to K.D. Willson, “Financial management is the application of the planning and control function to the finance function.”
Scope of Financial Management Finance is not a standalone activity of any organization. Its main objective is to arrange finances for meeting short terms and long terms needs. The three most important aspect of business firm includes Production, Finance and Marketing. Thus the scope of financial management can be :-
- Anticipation : To estimate the financial needs of the company. That means, to ensure how much finance is required by the company.
- Acquisition : In this, one tries to collect finance for the company from different sources.
- Allocation : In this process, one uses the collected finance to purchase fixed and current assets for the company.
- Appropriation : In this aspect, the company profits are divided among the shareholders, debenture holders, etc. It keeps a part of the profits as reserves.
- Assessment : Here, all the financial activities of the company are assessed at the maximum. Financial management plays an important role in the management system. All other major areas such as production management, finance management and marketing management depends on financial management. Efficient financial management is required for survival, growth and success of the company or firm.
Objectives of Financial Management For any business firm, the main objective is to maximize the owner’s economic welfare. This can be classified in the following categories:- Profit Maximization: – It means to maximize the rupee income of a firm. For any business firm, Profit earning is the main aim of every economic activity. It’s hard for any business to survive without earning profit. Wealth Maximization: – For any business firm, its main goal should be to maximize the wealth of its current shareholders. When any firm tries to maximize the stockholder’s wealth, the individual stockholder can use this wealth to maximize his individual utility. For any Stockholder’s current wealth in a firm = (Number of shares owned) x (Current stock price per share). Conclusion From the above scenario, one can say that financial management plays a vital role for any business firm. In order to sustain in the market, one needs to understand the basic practices of financial management.