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Introduction .........................................................................................................2
Introduction to Financial Management ............................................................3
Meaning of Finance
Definition of Finance
Definition of Finance Management
Importance of Finance Management

Traditional Role of a Financial Manager ........................................................9
Strategic Role of a Financial Manager .............................................................10
Conclusion ............................................................................................................11
Reference ...............................................................................................................12


1. Introduction
The financial management should be regarded as a component of the companys
general management. From this perspective, the financial management can be defined
as an under-system of the companys general management, having as purpose insuring
the necessary financial resources, their profitable assignment and usage, improving the
value and the safety of its patrimony, by fulfilling an active role, starting with the
financial resources meant for the establishment of the companys strategic and tactical
objectives and for the control and evolution of their fulfillment.
Beginning with this definition, it can be stated that the financial management has
at least the following tasks:
- to evaluate the effort, from the financial point of view, of all the actions that
are about to be made in a given administration period;
- to provide, at the right moment, in the structure and the quality conditions
claimed by necessities, the capital, at the lowest possible cost;
- to follow how the capital is used;
- to influence the decision factors in each performance centre in order to insure
an efficient usage of all funds attracted in the circuit;
- to insure and maintain the financial balance according to the companys
- to try to obtain the anticipated financial result and to distribute it on


2. Introduction to Financial Management
If we were to take into consideration certain financial objectives, we might come
up with ideas such as: survival; avoiding the financial crises or bankruptcy; overcoming
competition; maximizing sales or market rate; minimizing costs; maximizing profits;
maintaining an earnings sustained growth.
Each of these possibilities shows problems that have to be solved by the
financial management. If we take each mentioned idea, we might say that, at first sight,
the company does not need a financial manager. For example, the sales increase can be
achieved by increasing the loan period offered to the clients. To minimize costs, the
company can reduce the research volume of the research-development activity.
Bankruptcy can be avoided very easily: we do not take loans or we do not take risks.
But are these solutions really the best ones?
We do not borrow money, so we will not have debts and consequently the
possibility that the company may go bankrupt because of the impossibility to return the
funds does not exist anymore. Then, how will the company be able to finance its
investments? Internal sources will never be sufficient enough, especially if the company
decides to extend the loan period offered to clients. Therefore, the investment
possibilities will diminish and the company will have to run its activity under
inadequate conditions at least from the technical and technological point of view. The
consequences will first be reflected upon the price and the products quality and then

upon the market rate and finally it might lead to bankruptcy.
As a conclusion, does the company actually need a financial manager? The
answer id only one: obviously yes. Since most managerial decisions are measured in
financial terms, the financial management plays a key part inside the company. The size
and the importance of the financial management depend on the companys size. Inside
small and medium-sized companies, the financial managements obligations are
generally carried out by the accounting department. Once the companys size takes
proportions, the importance of the financial management reflects in the establishment of
certain distinct departments, directly subordinated to the companys president or the
executive managers by appointing a vice president of the finances, called financial
Also, the financial management offers solutions for these major decisions of the
company: the investment decision, the financing decision, and the dividend decision.
Assuming that the managers objective is to maximize the companys value, the
financial management has to find an optimal combination between the three major
decisions. For example, the decision of investing in new assets supposes finding new
financing sources. On the other hand, taking a financing decision influences, and is
influenced by, the dividend decision because the retained incomes as internal financing
sources would in fact belong to share-holders as dividends. The financial managements
task is to analyze the effects of each decision and to find an optimal element to
contribute to reaching the companys objective.
The financial management belongs to the companys decisional and control
under-system, which processes and offers information both from the inside, as well as

from the outside. Its basic concern is represented by the under-systems financial funds
management, the success of this activity being vital for the companys survival. The
information received by the financial management refers to:
- the funds investment cost on the capital markets;
- the current rates of exchange;
- the short-term interest rate, employed on the monetary markets;
- the information about the new investment opportunities available to the
- the innovation in the financial field and the existence of new financial
Regarding the decisional system, the financial management will give
information about:
- the interest rates which the company is willing to take loans at;
- the future cash flow needs;
- the recommendations of long-term debt increase, of shares issue or a
combination between these two;
- recommendations about taking short-term loans or about self-financing;
- the availability of risk management techniques;
- the economic units productions and the impact on the existing and planned
The financial dimension of a strategy is the one that better answers to the
objectives of a companys shareholders: the companys market value maximization and
the shares value maximization. It does not only represent the arch-reflex of the long term

decision but more likely the decisive factor in promoting such a decision.
Generally speaking, the basic purpose of the financial the basic purpose of the
financial managements actions has to be companys survival and implicitly its
situations consolidation, demonstrated by getting some worthy market performances.
For this reason, its role is to build a frame where the necessary connections between
three fundamental variables are about to be established, namely: the companys
objectives, the companys market value, the means and instruments used for measuring
the companys financial and general performances.

4 . Meaning of Finance
Finance is a field closely related to accounting that deals with the allocation of assets and
liabilities over time under conditions of certainty and uncertainty. Finance also applies and uses
the theories of economics at some level. Finance can also be defined as the science of money
management. A key point in finance is the time value of money, which states that purchasing
power of one unit of currency can vary over time. Finance aims to price assets based on their risk
level and their expected rate of return. Finance can be broken into three different sub-categories:
public finance, corporate finance and personal finance.

5 .Definition of Finance
According to Khan and Jain, Finance is the art and science of managing money.
According to Oxford dictionary, the word finance connotes management of money.

Websters Ninth New Collegiate Dictionary defines finance as the Science on study of the
management of funds and the management of fund as the system that includes the circulation of
money, the granting of credit, the making of investments, and the provision of banking facilities.

6 .Definition of Finance Management.
Financial management is an integral part of overall management. It is concerned with the duties
of the financial managers in the business firm.
The term financial management has been defined by Solomon, It is concerned with the efficient
use of an important economic resource namely, capital funds.
The most popular and acceptable definition of financial management as given by S.C. Kuchal is
that Financial Management deals with procurement of funds and their effective utilization in the
Howard and Upton : Financial management as an application of general managerial principles
to the area of financial decision-making.
Weston and Brigham : Financial management is an area of financial decision-making,
harmonizing individual motives and enterprise goals.
Joshep and Massie : Financial management is the operational activity of a business that is
responsible for obtaining and effectively utilizing the funds necessary for efficient operations.
Thus, Financial Management is mainly concerned with the effective funds management in the
business. In simple words, Financial Management as practiced by business firms can be called as
Corporation Finance or Business Finance.

7 .Importance of Financial Management.
Finance is the lifeblood of business organization. It needs to meet the requirement of the business
concern. Each and every business concern must maintain adequate amount of finance for their
smooth running of the business concern and also maintain the business carefully to achieve the
goal of the business concern. The business goal can be achieved only with the help of effective

management of finance. We cant neglect the importance of finance at any time at and at any
situation. Some of the importance of the financial management is as follows:
Financial Planning
Financial management helps to determine the financial requirement of the business concern and
leads to take financial planning of the concern. Financial planning is an important part of the
business concern, which helps to promotion of an enterprise.
Acquisition of Funds
Financial management involves the acquisition of required finance to the business concern.
Acquiring needed funds play a major part of the financial management, which involve possible
source of finance at minimum cost.
Proper Use of Funds
Proper use and allocation of funds leads to improve the operational efficiency of the business
concern. When the finance manager uses the funds properly, they can reduce the cost of capital
and increase the value of the firm.

Financial Decision
Financial management helps to take sound financial decision in the business concern. Financial
decision will affect the entire business operation of the concern. Because there is a direct
relationship with various department functions such as marketing, production personnel, etc.
Improve Profitability
Profitability of the concern purely depends on the effectiveness and proper utilization of funds by
the business concern. Financial management helps to improve the profitability position of the
concern with the help of strong financial control devices such as budgetary control, ratio analysis
and cost volume profit analysis.
Increase the Value of the Firm
Financial management is very important in the field of increasing the wealth of the investors and
the business concern. Ultimate aim of any business concern will achieve the maximum profit and
higher profitability leads to maximize the wealth of the investors as well as the nation.


Promoting Savings
Savings are possible only when the business concern earns higher profitability and maximizing
wealth. Effective financial management helps to promoting and mobilizing individual and
corporate savings.
Nowadays financial management is also popularly known as business finance or corporate
finances. The business concern or corporate sectors cannot function without the importance of
the financial management.

8. Traditional Role of a Financial Manager
The financial manager plays a dynamic role in a modern companys development. This has
not always been the case. Until around the first half of the 1900s financial managers primarily
raised funds and managed their firms cash positions and that was pretty much it. In
the 1950s, the increasing acceptance of present value concepts encouraged financial managers
to expand their responsibilities and to become concerned with the selection of capital investment
Today, external factors have an increasing impact on the financial manager. Heightened
corporate competition, technological change, volatility in inflation and interest rates, worldwide
economic uncertainty, fluctuating exchange rates, tax law changes, and ethical concerns
over certain financial dealings must be dealt with almost daily. As a result, finance is required
to play an ever more vital strategic role within the corporation. The financial manager has
emerged as a team player in the overall effort of a company to create value. The old ways
of doing things simply are not good enough in a world where old ways quickly become

obsolete. Thus todays financial manager must have the flexibility to adapt to the changing
external environment if his or her firm is to survive.
The successful financial manager of tomorrow will need to supplement the traditional
metrics of performance with new methods that encourage a greater role for uncertainty
and multiple assumptions. These new methods will seek to value the flexibility inherent in
initiatives that is, the way in which taking one step offers you the option to stop or continue
down one or more paths. In short, a correct decision may involve doing something today
that in itself has small value, but gives you the option to do something of greater value in
the future.
If you become a financial manager, your ability to adapt to change, raise funds, invest in
assets, and manage wisely will affect the success of your firm and, ultimately, the overall
economy as well. To the extent that funds are misallocated, the growth of the economy will be
slowed. When economic wants are unfulfilled, this misallocation of funds may work to the
detriment of society. In an economy, efficient allocation of resources is vital to optimal growth
in that economy; it is also vital to ensuring that individuals obtain satisfaction of their highest
levels of personal wants. Thus, through efficiently acquiring, financing, and managing assets,
the financial manager contributes to the firm and to the vitality and growth of the economy
as a whole.

9. Strategic Role of a Financial Manager
Finance function is one of the major parts of business organization, which involves the
permanent, and continuous process of the business concern. Finance is one of the interrelated
functions which deal with personal function, marketing function, production function and

research and development activities of the business concern. At present, every business concern
concentrates more on the field of finance because, it is a very emerging part which reflects the
entire operational and profit ability position of the concern. Deciding the proper financial
function is the essential and ultimate goal of the business organization.
Finance manager is one of the important role players in the field of finance function. He must
have entire knowledge in the area of accounting, finance, economics and management. His
position is highly critical and analytical to solve various problems related to finance. A person
who deals finance related activities may be called finance manager.
Finance manager performs the following major functions:
1. Forecasting Financial Requirements
It is the primary function of the Finance Manager. He is responsible to estimate the financial
requirement of the business concern. He should estimate, how much finances required to acquire
fixed assets and forecast the amount needed to meet the working capital requirements in future.
2. Acquiring Necessary Capital
After deciding the financial requirement, the finance manager should concentrate how the
finance is mobilized and where it will be available. It is also highly critical in nature.
3. Investment Decision
The finance manager must carefully select best investment alternatives and consider the
reasonable and stable return from the investment. He must be well versed in the field of capital
budgeting techniques to determine the effective utilization of investment. The finance manager
must concentrate to principles of safety, liquidity and profitability while investing capital.

11. Conclusion
Financial management is concerned with the acquisition, financing, and management of assets
with some overall goal in mind.
The decision function of financial management can be broken down into three major areas: the
investment, financing, and asset management decisions.
We assume in this book that the goal of the firm is to maximize the wealth of the firms present
owners (or shareholders). Shareholder wealth is represented by the market price per share of the

firms common stock, which, in turn, is a reflection of the firms investment, financing, and asset
management decisions.
The market price of a firms stock represents the focal judgment of all market participants as to
the value of the particular firm. It takes into account present and prospective future earnings per
share; the timing, duration, and risk of these earnings; the dividend policy of the firm; and other
factors that bear on the market price of the stock.

Financial Management By C. Paramasivan and T. Subramanian. Chapter 1.