Meaning:
- Financial Management is
a specialised function of general management. It refers to management of
business funds. It is mainly concerned with raising of finance and its effective
utilization for achievement of goals of the organization.
Definition: -"financial Management is concerned
effective use of an important economic resource, namely capital funds."
Function of Financial
Management: The
functions of financial management can be divided into two:
(A) Routine
functions (B)
Executive Function
Routine functions
1. Record keeping and reporting...Preparation
of various financial statements...Cash planning...Credit management
2. Providing information to Board of Directors
on current financial position for making decisions of purchases, marketing,
pricing, etc.
(B) Executive
Function
1. Forecasting
Financial requirements: -Financial needs have to be carefully estimated in
business. Money may be required for long term purpose i.e. fixed capital and
for short term purpose i.e. working capital. Forecasting is not only concerned
with amount of money required for a programme but also includes:
a)
Duration of funds (5 years, etc)
b)
Timing of supply of funds.
c)
Kinds of funds (owned or borrowed, etc)
2.
Deciding sources of funds:
-Once the need of finance
is revealed, various sources of funds must be considered. Different type of
securities like shares, debentures, etc. can be issued to raise funds. Funds
may also be borrowed from financial institutions and lenders. There should be a proper
balance between long term funds and short term funds.
3. Investment
decisions: -Investment decisions refer to the decisions regarding
utilization of funds raised by the firm. It relates to the selection of assets
in which funds are to be invested. The funds can be invested in two types of
assets, mainly
a)
Long
term assets or Fixed assets b) Short term assets or current assets
4. Dividend
Policy: -A
business firm is basically a profit earning organization. The earnings of a
firm depend upon efficient utilization of funds. Financial management is also
concerned with the decision to declared dividend. A finance manager has to
decide what portion of profit is to be retained in the business and balance is
to be distributed among shareholders.
5. Checking
and analysis of financial performance: -The checking and analyzing financial
performance is very essential to carry out financial functions smoothly. For this
various financial statements are prepared and analysed. This is of great value
in improving techniques of financial control.
6. Advising
Board of Directors: A finance manager provides advice to Board of
Directors in respect of financial matters. He suggests various solutions for
any financial difficulty; normally finance manager gives advice on important
matters such as pricing, expansion, acquisition (gaining), dividend policy,
etc.
