Financial management involves planning, organizing, directing, and controlling finances to achieve organizational goals effectively and efficiently. The key objectives of financial management are wealth maximization and profit maximization. Under wealth maximization, decisions are based on cash flows and time value of money to analyze risk and maximize a project's net present value. Financial managers make important decisions regarding financing, investing, and dividends. While an essential function, financial management has some limitations such as being dependent on accurate accounting records and requiring knowledge across business disciplines.

1. FINANCIAL MANAGEMNET

2. Content :-
• Meaning of Finance
• Objective of Finance
• Meaning of Financial Management
• Nature of Financial Management
• Objective of Financial Management
• Superiority of Wealth Maximization
• Decisions taken by Financial Manager
• Limitations of Financial Management
• Organisation structure

3. Meaning of finance
• Finance of life blood of business.
• Finance means “money or the acts of
providing means of money”.
• Finance is the study of money
management.
• Finance also termed as
Capital/Funds/Money/Amount.

4. Objective of finance
There is only two objective of finance.
These are :-
1. Procurement of funds :- it means
gathering of funds from different
sources.
2. Utilisation of funds :- it means
utilise funds in different projects
to get maximum returns.

5. Meaning of financial Management
The word financial management derives from two
words Finance & Management.
Financial Management
Finance Management
Money/Fund/Capital Planning, Organising, Directing &
Controlling of activities in order to
achieve the organisational goals.
Financial Management is the planning, organising, directing &
controlling of the finance to achieve the organisational goals
effectively & efficiently.

6. Nature of financial Management
1. It is an essential part of business.
2. It is a continuous administrative
function.
3. It is more scientific & analytical in
nature.
4. It is base to all the functional area of
organisation.
5. It is wider & complex in nature.
6. It is different from accounting
function

7. Objective of financial
Management
The objective of financial management
is based on two approaches. These are :-
OBJECTIVES
Traditional
Approach
Modern
Approach
Profit
Maximization
Wealth
Maximization

8. I. Traditional Approach (Profit
Maximization) :-The main aim of any business is to maximise its
profit.
But this approach have many drawbacks, these are :
1. Profit is vague :- the concept of this approach
is not clear.
2. It ignores risk factor :- it only focuses on
earning profit and ignores the risk behind it.
For e.g. two companies A & B, start business
with same amount of capital but Company-A
earns 12% return on the capital while Company-
B earns 15% return on capital. So the company-
A earns less profit than company-B. So for
investors it is very risky to invest in Company-
A.
3. It ignores the time value of money :- the value
of money is decreased with the passage of
time. For e.g. :- in 1990s, the 4Kachooris price

9. I. Modern Approach (Wealth
Maximization) :-
• Wealth maximization means to
maximise the net present value or
wealth of a course of action.
• It is also known as ‘Value Maximization’
or ‘Net Present Value
Maximization(NPV)’.
• It is denoted by market price per
share (MPS).

10. Superiority of Wealth
Maximization :-
• We have discussed the both
approaches of financial management,
but in present day the wealth
maximization is a better objective for
any business. This approach is better
because of following points :-
1. It is based on cash flows and not on
profits.
2. It recognizes time value of money.
3. It analyses the risk and uncertainty.

11. Decision taken by financial
manager :-
There are three types of decision taken
by financial manager.
DECISIONS
Financial
Decision
Investing
Decision
Dividend
Decision

12. I. Financing decision :-
• In financing decision, a financial
manager has to decide about the
amount of capital required; proportion
of debt and equity capital (capital
structure) and selection of the sources
of funds.
• The financial manager not only procure
funds for capital but also manage
additional funds for development,
expansion, amalgamation and merger
plans.

13. I. Investing decision :-
• Investment decisions pertain to the
allocation of funds raised with a view
to acquire assets.
• The funds invest in two types of assets
:- Fixed & Current assets.
• Investing in Fixed assets called Capital
Budgeting Decision.

14. I. Dividend decision :-
• Dividend decisions pertains to
allocation of income .
• The term “Dividend” refers to that
part of profits of a company which is
distributed by it among its
shareholders.

15. Limitations of Financial
management
1. It is based on accounting records (i.e.
depends on correctness & accuracy of
information).
2. Financial management is related to
other subjects also, so the financial
manager must have knowledge of other
subjects also.
3. It is not the alternative of
administration.
4. It is subjective, so the decisions are
affected by personal opinions.
5. It is so costly.
6. It is on developing stage so, it is not