Financial management

What is Finance?
Finance is basically a field of study which deals with

money, stocks, and assets. Finance is the art and science of managing money. The two main areas of finance are corporate finance and personal finance and both of these have different characteristics. Personal finance deals with the credit, borrowings, and savings of an individual while Corporate finance deals with the financial strategies of a business and with portfolio management for a business.

Finance Functions
1. Financing decisions 2. Investment decisions 3. Dividend policy decision 4. Liquidity Decision

 A. Financing Decisions are decisions regarding

process of raising the funds. This function of finance is concerned with providing answers to various questions like What should be the amount of funds to be raised. What are the various sources available to organization

for raising the required amount of funds? If organization, wants to raise funds from different sources, it is required to comply with various legal & procedural formalities. What kinds of changes have taken place recently affecting capital market in the country?

 A financial manager must decide when, where from

and how to acquire funds to meet the firms investment needs. The central issue before him is to determine the appropriate proportion of equity and debt. The mix of equity and debt is known as firms capital structure.

 B. Investment decisions:- are decisions regarding

application of funds raised by organization. It is referred as capital budgeting. A capital budgeting decisions involves the decisions of allocation of capital. These relate to selection of the assets in which funds should be invested.

 C . Dividend Policy Decisions:- Such decisions

include * What are forms in which dividend can be paid to shareholders? * What are legal & procedural formalities to be completed while paying dividend different forms? The proportion of profits distributed as dividend is called dividend-payout ratio and the ratained portion of profits is known as the retention ratio.

 D . Liquidity Decisions:- Current assets should be

managed efficiently for safe guarding firm against of liquidity & insolvency. In order to ensure that neither insufficient nor unnecessary funds are invested in current assets, the financial manager should develop sound technique of managing current assets.

Financial Management
Financial Management means planning, organizing,

directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. It is concerned with the duties of the financial managers in the business firm.

Definitions
Financial Management is the application of the

planning and control functions to the finance function.- Howard and Upton.

Financial Management is the operational activity of a business that is responsible for obtaining and effectively, utilizing the funds necessary for efficient operations.- Joseph and Massie.

Objectives of Financial Management

1. Profit maximization. 2. Return Maximization. 3. Wealth Maximization.

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