Topics: Investment, Balance sheet, Finance Pages: 5 (1036 words) Published: February 10, 2013
Topic: - Liquidity Management.
(Ensuring all obligations are meat in
a firm at all time)


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.

The present age is the age of industrialization. Large industries are being established in every country. It is very necessary to arrange finance for building, plant and working capital, etc. for the established of these industries. How much of capital will be required, from what sources this much of finance will be collected and how will it be invested, is the matter of financial management.

Financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources.

It was a branch of economics till 1890, and as a separate discipline, it is of recent origin. Still, it has no unique body of knowledge of its own, and draws heavily on economics for its theoretical concepts even today. In general financial management is the effective & efficient utilization of financial resources. It means creating balance among financial planning, procurement of funds, profit administration & sources of funds. (Taken from Website MBA Knowledge Base)

Definition: -

According to Solomon, “Financial management is concerned with the efficient use of an important economic resource, namely, capital funds.”

According to Weston & Brigham, “Financial management is an area of financial decision making harmonizing individual motives & enterprise goals.”

According to J. F. Bradley, “Financial management is the area of business management devoted to the judicious use of capital & careful selection of sources of capital in order to enable a spending unit to move in the direction of reaching its goals.”

Scope/Elements: -

Investment decisions - include investment in fixed assets (called as capital budgeting). Investment in current assets is also a part of investment decisions called as working capital decisions.

Financial decisions - They relate to the raising of finance from various resources, which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.

Dividend decision - The finance manager has to take decision with regards to the net profit distribution.

“Traditionally the basic objectives of financial management are the maintenance of liquid assts and maximisation of profitability of the firm. (Financial management book by NIBM). Which in help to meet all cash oriented goal at all time.”

Profit maximization: -

Profit maximization is considered as the goal of financial management. In this approach, actions that Increase profits should be undertaken and the actions that decrease the profits are avoided. Thus, the Investment, financing and dividend also be noted that the term objective provides a normative framework decisions should be oriented to the maximization of profits.

Profit maximization is the traditional approach and the primary objective of financial management. It implies that every decision relating to business is evaluated in the light of profits. All the decision with respect to new projects, acquisition of assets, raising capital, distributing dividends etc are studied for their impact on profits and profitability. If the result of a decision is perceived to have positive effect on the profits, the decision is taken further for implementation.

Wealth Maximisation: -

Wealth maximization is a modern approach to financial management. Maximization of profit used to be the main aim of a business and financial management till...
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