Financial management is referred to as the science of money management. The management of funds is a critical aspect of financial management. Financial management is simply concerned with managing an entity’s money. It is also about the management of the finances of a firm in order to achieve financial objectives. In the business world this would mean monitoring expected inflows and outflows of fund while observing their effect on the managerial objectives.
Procurement of funds and an effective use of funds to achieve business objectives are two main aspects of financial management. Although, funds obtained from different sources have different characteristics in terms of potential risk, cost and control, financial management constitutes them. Therefore, in order for an appropriate balancing of risk and control, the cost of funds should be at minimum. In addition, to reduce these risks and costs, it is crucial to utilize the funds effectively and profitably which is also an important aspect of financial management as it avoids the situations where the funds are kept idle. Financial management is essential even in a planned economy, a capitalist set-up as well as in all profit and non-profit organizations as it involves efficient use of resources. Mismanagement of financial affairs can lead to a company’s liquidation even through high profits. And these liquidation does not happen due to obsolete technology or because their products were not in demand or their labor was not skilled and motivated, but due to the problem of bad financial management. Financial management optimizes the output from the given inputs, so having sound financial management guarantees a company’s survival.
The key objectives of financial management would be profit maximization and wealth maximization. Although profit maximization is a common goal in all companies it cannot be the one and only objective. This is due to the fact that profit and risks are... [continues]
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