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.
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Scope:
Investment Decisions– Includes investment in fixed assets (called as capital budgeting). Investment in current assets is also a part of investment decision called as capital decisions.
Financial Decisions– They relate to the raising of finance from various resources which will depend upon the type of sources, the period of financing, the cost of financing and the return thereby.
Dividend Decision– The finance manager has to take the decision with regard to the net profit distribution. Net Profit is generally divided into two:
- The dividend for Shareholders- Dividend and the rate of it had to be decided.
- Retained Profit- Amount of retained profit has to be finalized which will depend upon expansion and diversification plan of the enterprise.
Objective of Financial Management:
The financial management is generally concerned with procurement, allocation, and control of financial resources of a concern. The objective can be:
- To ensure regular and adequate supply of funds to the concern.
- To ensure adequate return to the shareholders this will depend upon the earning capacity, the market price of the share, expectations of the shareholders.
- To ensure optimum fund utilization. Once the funds are procured, they should be utilized.
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