Financial Management
Financial management refers to the process of planning, organizing, controlling and
monitoring financial resources with a view to achieve organisational goals and objectives
According to I. M. Pandey, "Financial Management is the managerial activity which is
concerned with the planning and controlling of the firm's financial resources"
Scope of Financial Management
1.Financing Decisions: Financing decision refers to the decision regarding the amount of
finance to be raised and identifying the various available sources for raising the finance.
Managers make decisions pertaining to raising finance from long-term sources and
short-term sources. It includes:
i. Financial Planning decisions which relate to estimating the sources and application of
funds.
ii.Capital Structure decisions which involve identifying sources of funds.
2.Investment Decisions: The investment decision relates to the decision made by the
investors or the top level management with respect to the amount of funds to be deployed in
the investment opportunities.
i.Long-term investment decisions or Capital Budgeting mean committing funds for a long
period of time, mainly in fixed assets.
iiShort-term investment decisions or Working Capital Management means committing funds
for a short period of time, mainly in current assets.
3.Dividend Decisions: Dividend decision refers to the policy of management concerning the
quantum of profits to be distributed among the shareholders and how much to be retained in
the business for reinvestment.
scope of financial management includes the following:
i.Anticipation: Financial management estimates the financial needs of the company.
ii. Acquisition: it collects finance for the company from different sources.
iii. Allocation: It uses the collected finance to purchase both fixed and current assets for the
company.
iv. Appropriation: It divides the company's profits among the shareholders, debentureholders,
etc. It also retains a part of the profit.
v. Assessment: It also controls all the financial activities of the company.
Importance of Financial Management
1.Aids in financial planning: Finance manager of an organisation has to estimate financial
needs with the help of cash flow statements, cash budgets, etc.
2.Facilitates financial decision making: Any financial decisions make an immediate and
direct effect on the business, which in turn will affect the profitability.
3.Helps in acquiring financial resources: Financial Manager has to initiate steps in tapping
potential sources of funds and raising them at low cost for meeting the financial needs of the
company.
4.Assists in optimal allocation of funds: There should be optimum allocation and deployment
of funds to various assets in order to achieve maximum return.
5.Helps to analyse financial performance: Inorder to get maximum return on investments, the
cost and benefit of each financial decision must be analysed.
6.Helps in accounting and reporting: The financial manager of an organisation should supply
information about the financial performance to the top management.
7.Helps in cost control: Application of various tools of financial management enables the
financial manager to bring costs under control.
Financial management refers to the process of planning, organizing, controlling and
monitoring financial resources with a view to achieve organisational goals and objectives
According to I. M. Pandey, "Financial Management is the managerial activity which is
concerned with the planning and controlling of the firm's financial resources"
Scope of Financial Management
1.Financing Decisions: Financing decision refers to the decision regarding the amount of
finance to be raised and identifying the various available sources for raising the finance.
Managers make decisions pertaining to raising finance from long-term sources and
short-term sources. It includes:
i. Financial Planning decisions which relate to estimating the sources and application of
funds.
ii.Capital Structure decisions which involve identifying sources of funds.
2.Investment Decisions: The investment decision relates to the decision made by the
investors or the top level management with respect to the amount of funds to be deployed in
the investment opportunities.
i.Long-term investment decisions or Capital Budgeting mean committing funds for a long
period of time, mainly in fixed assets.
iiShort-term investment decisions or Working Capital Management means committing funds
for a short period of time, mainly in current assets.
3.Dividend Decisions: Dividend decision refers to the policy of management concerning the
quantum of profits to be distributed among the shareholders and how much to be retained in
the business for reinvestment.
scope of financial management includes the following:
i.Anticipation: Financial management estimates the financial needs of the company.
ii. Acquisition: it collects finance for the company from different sources.
iii. Allocation: It uses the collected finance to purchase both fixed and current assets for the
company.
iv. Appropriation: It divides the company's profits among the shareholders, debentureholders,
etc. It also retains a part of the profit.
v. Assessment: It also controls all the financial activities of the company.
Importance of Financial Management
1.Aids in financial planning: Finance manager of an organisation has to estimate financial
needs with the help of cash flow statements, cash budgets, etc.
2.Facilitates financial decision making: Any financial decisions make an immediate and
direct effect on the business, which in turn will affect the profitability.
3.Helps in acquiring financial resources: Financial Manager has to initiate steps in tapping
potential sources of funds and raising them at low cost for meeting the financial needs of the
company.
4.Assists in optimal allocation of funds: There should be optimum allocation and deployment
of funds to various assets in order to achieve maximum return.
5.Helps to analyse financial performance: Inorder to get maximum return on investments, the
cost and benefit of each financial decision must be analysed.
6.Helps in accounting and reporting: The financial manager of an organisation should supply
information about the financial performance to the top management.
7.Helps in cost control: Application of various tools of financial management enables the
financial manager to bring costs under control.
