Financial Management may be defined as the part of management, which is
1. Raising funds in the most economic and suitable manner.
2. Using these funds as profitably (for a given risk level) as possible.
3. Planning future operations and controlling current performance and
future developments through financial accounting, cost accounting,
budgeting, statistics and other means.
4. (a) It guides investments where opportunity is the greatest, producing
relatively uniform yardstick.
(b) judging most of a firms operation and projects and is
(c) continuously concerned with achieving an adequate rate of return on
investments, as this is necessary for survival and the attracting of new capital.
Prof. Ezra Solomon- “FM is concerned with the efficient use of an
important economic resource namely Capital Funds”
Phillipalos ‘ FM is concerned with the management decision that results in
the acquisition and financing of long term and short term assets for the
firms. As such, it deals with the situation that requires the selection of
specific assets (or combination of assets) as well as the problem of size
and growth of an enterprise. The analysis of these decisions is based on
the expected inflows and outflows of funds and their effects upon
N.G. Wright divides FM into 3 main areas
1. Decision on the capital structure.
2. Allocation of available funds to specific uses.
3. Analysis and appraisal of problems
In other words FM is that part of managerial activity, which is mainly
concerned with the planning and control of the financial resources of a
firm. i.e. its acquisition and proper use of funds by a business firm.
Financial Management is an excellent tool by means of which resources
can be allocated to various projects, depending upon their importance
and pay off capacities.
It provides the best guide for future resource allocation by a firm.
It provides relatively uniform yardsticks for judging most of the
enterprises operations and projects. It helps firms in planning the output
from a given input of funds.
FM implies the designing and implementation of a certain plan. Plains
aim at an effective utilization of funds. It helps a firm in monitoring the
effective employment of funds in Fixed Assets (fixed capital) as well as
current assets (working capital).
FM connotes responsibility for obtaining and effectively utilising the
funds necessary for the efficient operation of an enterprise. It makes it
possible for the finance manager to obtain funds at the best time in
relation to their cost and their effective use in the business firm.
FM is the dynamic evolving on making of day to day financial decision
in a business of any size.
FM is important because it has an impact on all the activities of a firm.
Its primary responsibility is to discharge the finance function successfully.
It touches on all the other business function. It may be described as
making decision on financial matter and facilitating and reviewing their
execution. FM helps in prompt planning, capital budgeting, controlling
inventories, accounts receivable etc.
FM implies a more comprehensive concepts than the simple objectives of
profit making or efficiency. Its broader mission is to maximise the value
of the firm so that the interest of the different sections of the community
FM applies to any organisation irrespective of its size, nature of
ownership and control and whether it is a manufacturing or service
organisation. It applies to any activity of an organisation, which has
financial implications. FM is important even for non-profit organisations. It
helps them to control the costs and to use the funds at their disposal in the
most useful manner.
FM does not handle merely routine day-to-day matters. Often it deals with
more complex problems such as mergers, re-oranisation of the like.
It plays 2 distinct roles.
Firstly, it safeguards the interests of the corporations
which is a separate legal entity.
Secondly, this separates legal entity has no meaning
unless the interests of the owner and other sections
of the community, which are concerned directly with
the corporations, are properly protected.
FM responsibility is to insure that finance contributes to efficient day-to-
day operations as well as the long-range objectives of the owners.
FM is thus an integrated and composite subject. It brings together much of
the material that is found in accounting, economic, mathematics, system
analysis and behavioral sciences and uses other disciplines as it tools.
Thus it is clear that the FM is very necessary for the progress of the enterprise.
Its importance has increased in modern times because of the financial
commitment of the management to different parties concerned.
Goals of Financial Management
The financial decisions are unavoidable and continuous. In order to make them
rationally, the firm must have objectives. It is generally agreed that the financial
objectives of the firm should be the maximisation of owner’s economic welfare.
However, there is disagreement as to how the economic welfare of the owner
can be maximized.
The objectives of Financial Management can be broadly classified into 2
1. Basic objectives 2. Other objectives.
Maintenance of adequate liquid assets in the firm is one of the basic objectives
of financial management. It implies that financial management should ensure that
there are adequate cash in the hands of the firm at all times to meet is obligation.
1. Maximisation of profit -- a business firm is a profit-seeking organisation.
This objective implies that financial management should ensure that the profit
of the firm is maximized.
2. Maximisation of wealth -- is the most important objective of financial
1. Ensure maximum operational efficiency through planning, directing
and controlling the utilization of funds. i.e. through the effective
employment of funds.
2. Enforcing financial discipline in the organisation in the use of financial
resources through the co-ordination of the operation of the various
divisions in the organisation.
3. Building up of adequate resource for financing growth and expansion.
4. Ensuring a fair return to the shareholder on their investment.