Finance is the study of how investors allocate assets over time under conditions of certainty and uncertainty. Financial management involves planning, organizing, directing, and controlling the financial activities and resources of an enterprise to meet its objectives. The key functions of financial management include estimating capital requirements and cash flows, determining optimal capital structure, making investment and dividend decisions, and checking financial performance. Financial managers must work to procure and utilize funds effectively while balancing the needs of shareholders and the firm.

1. Finance: Finance is the study of how investors allocate their assets over time under conditions of certainty
and uncertainty.
Business Finance: Business Finance is that business activity which is concerned with the acquisition and
conservation of capital funds in meeting financial needs and overall objectives of business enterprise.
Meaning of 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.
 According to Van Home and Wachowicz, “Financial Management is concerned with the acquisition,
financing and management of assets with some overall goal in mind.”
 Financial management can be broadly defined as the management of the finances of an organization in
order to achieve its financial objectives. Financial management mainly involves decisions regarding
investments, financing and dividends.
 According to Dr. S. N. Maheshwari, "Financial management is concerned with raising financial
resources and their effective utilisation towards achieving the organizational goals.
 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.
Functions of Financial Management:
Functions of financial management can be broadly divided into two groups.
A. Executive functions of financial management, and
B. Routine functions of financial management.
1. Estimating capital requirements: The Company must estimate its capital requirements (needs) very
carefully. This must be done at the promotion stage. The company must estimate its fixed capital needs
and working capital need. If not, the company will become over-capitalized or under-capitalized.
2. Determining capital structure: Capital structure is the ratio between owned capital and borrowed
capital. There must be a balance between owned capital and borrowed capital. If the company has too
much owned capital, then the shareholders will get fewer dividends. Whereas, if the company has too
much of borrowed capital, it has to pay a lot of interest. It also has to repay the borrowed capital after
some time. So the finance managers must prepare a balanced capital structure.
3. Estimating cash flow: Cash flow refers to the cash which comes in and the cash which goes out of the
business. The cash comes in mostly from sales. The cash goes out for business expenses. So, the finance
manager must estimate the future sales of the business. This is called Sales forecasting. He also has to
estimate the future business expenses.
4. Investment Decision: It refers to the selection of the assets in which investment is to be made by the
company. Investment can be made in Long term fixed assets and short term current assets. Thus
Investment decision is divided in two parts:
a) Long term Investment decisions: Such decisions are also called Capital Budgeting decisions. It
relates to the investment in long term fixed assets. As such decisions affects the growth of the firm,
it involves huge fund to be blocked for a long period, and such decisions are irreversible in nature,
they should be taken carefully after making a comparative study of various alternatives available.

2. b) Short term Investment decision (Working capital decision): It refers to investment in short term
assets such as cash, inventory, raw materials, debtors etc. Finance manager has to ensure that
enough working capital is available to meet the day to day requirements.
5. Dividend Decision: Dividend is a part of profits that are available for distribution, to equity
shareholders. Payment of dividends should be analyzed in relation to the financial decision of a firm.
There are two options available in dealing with the net profits of a firm, viz.
 distribution of profits as dividends to the ordinary shareholders’ where there is no need of
retention of earnings or,
 It can be retained in the firm for financing of any business activity.
But distribution of dividends or retaining should be determined in terms of its impact on the
shareholders wealth The Financial manager should determine optimum dividend policy, which
maximizes market value of the share thereby market value of the firm.
6. Checking the financial performance: The finance manager has to check the financial performance of
the company. This is a very important finance function. It must be done regularly. This will improve the
financial performance of the company. Investors will invest their money in the company only if the
financial performance is good. The finance manager must compare the financial performance of the
company with the established standards. He must find ways for improving the financial performance of
the company.