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What is Financial Management?

It is a decision making process concerned with
planning, acquiring and utilizing funds in a manner that
achieves the firms desired goals.
What is the role of Financial Managers?
Financial manager acts in the owners or shareholder's "best interest".
"Maximize the current value per share of the existing stock or ownership in a
business firm"
a. The total funds requirements the firm
b. The assets or resources to be acquired
c. The best pattern of financing the assets

What is its main goal?

Profit-oriented Businesses : "make money and add
value for the owners"

Financial management is limited to the acquisition,
financing and management of assets.

Types of Financial decisions

1. Investment decisions
2. Financing decisions
3. Dividend decisions

- which determine how scare or limited
resources are committed to projects
- It should consider profitability that will lead
to the creation of wealth

- asserts the mix of debt and equity or capital
structure decision
Financial leverage refers to the use of debt to
acquire additional assets. Financial leverage is
also known as trading on equity. Principle of
Financial leverage must be consider when
selecting debt-equity mix.

- concerned with the determination of
quantum of profits to be distributed to
owners, the frequency and the amount to be


Broad Applicability
The concept of cash flow is one of the central elements of financial analysis,
planning, control, and resource allocation decisions.

Reduction of Chances of Failure

Financial discipline
Finance function is treated as primordial which enables the other functions to
be effective in achieving goals.

Measurement of Return on Investment

FM studies the risk-return perception.

Relationship of Financial Management,

Accounting and Management Accounting
Accounting involves in the systematic of recording of transactions of
the firms' activities and summarizing the same for financial reporting
Financial Management - in the analysis and review of business
position in decision making
ECONOMICS - is the study of how people choose to use resources.
Microeconomics - deals with the economic decisions of individuals
and firms
Macroeconomics - The field of economics that studies the behavior
of the aggregate economy; examines economy-wide

between FA
and MA

Financial Accounting

Management Accounting

1. External and Financial accounting information is Management accounting information

Internal users mainly intended for external users is mainly meant for internal user, i.e.,
like investors, shareholder,
creditors, Govt. authorities etc.
2. Statutory
Under company law and tax law, Management accounting is optional
requirements financial accounting is obligatory to though its utility makes it highly
satisfy various statutory provisions. desirable to adopt it.
3. Analysis of Financial accounting shows the
cost and profit profit / loss of the business as a
whole. It does not show the cost
and profit for individual products,
processes or departments, etc.

Management accounting provides

detailed information about individual
products, plants, departments or any
other responsibility center.

between FA
and MA
4.Past and
future data

5. Periodic and

6. Accounting

It is concerned with recording

transactions, which have already taken
place, i.e., it represents past or historical
Financial reports, i.e., Profit and Loss
account and Balance Sheet are prepared
usually on a year to year basis.

It is future oriented and concentrates on

what is likely to happen in future though it
may use past data for future projections.

Companies are required to prepare

financial accounts according to
accounting standards issued by the
Institute of chartered accountants of

Management accounting is not bound by

accountings standards. It may use any
practice which generates useful
information to management.

Management accounting reports are

prepared frequently, i.e, these may be
monthly, weekly or even daily depending
on managerial requirements

between FA
and MA

7.Types of

Financial accounting prepares general

purpose statements Profit & Loss
account and Balance sheet which are
used by external users.

In Management accounting special purpose

reports are prepared, eg, performance
report of sales manager or any other
department manager which are used by
top level Management.
8.Pubilcation and Financial statements, i.e., P&L A/c and Management accounting statements are
Balance sheet are published for general for internal use and thus neither published
public use and also sent to share
for general public use nor these are
holders. These are required to be
required to be audited by chartered
audited by the chartered Accountants. accountants.

Financial accounting and reporting provide the

accounting information and the management accounting
aims to aid and form strategies to manage and control
the business operations while financial management is
solely concerned with the financial analysis and decision
making of a firms matters bound to 3 financial decisions
of investment, financing and dividend distributions in
order to create wealth. All of these 3 co-exist to cater the
needs of the company.