Introduction to Finanacial Management

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Chapter – 1


According to the Encyclopedia of Social Sciences, Corporate finance deals with the financial problems of corporate enterprises. Problems include financial aspects of the promotion of new enterprises and their administration during early development, the accounting problems connected with the distinction between capital and income, the administrative questions created by growth and expansion and finally the financial adjustments required for the bolstering upon rehabilitation of a corporation which has come into financial difficulties. Management of all these is financial management. Financial management mainly involves rising of funds and their effective utilization with the objective of maximizing shareholders’ wealth.

According to Joseph and Massie, “financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations”.

According to Van Horne and Wachowicz, “Financial Management is concerned with the acquisition, financing and management of assets with some overall goal in mind.”

Financial manager has to forecast expected events in business and note their financial implications. First, anticipating financial needs means estimation of funds required for investment in fixed and current assets or long-term and short-term assets. Second acquiring financial resources–once the required amount of capital is anticipated the next task is acquiring financial resources i.e., where and how to obtain the funds to finance the anticipated financial needs and last allocating funds in business – means allocation of available funds among best plans of assets, which are able to maximize shareholders’ wealth. Thus the decisions of financial management can be divided into three viz., investment, financing and dividend decision.

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