Question

what is financial management

Answer 1

Answer to the question:

Financial Management: Financial management comprises of two words i.e. Finance and management.

Therefore in layman’s words financial management is the management of the finance or funds in an organization.

Any firm can raise the fund from the market either in the form of Equity or in the form of debt, but the firm which manage the fund in better way results in better performance in the market place.

Financial management focuses on the ratios, equities and debts. The management of finance is useful for portfolio management, distribution of dividend, capital raising and many other decisions in day to day business activities.

Financial management refers to the efficient and effective management of the money, as the better the management of money greater will be the value of the firm.

Tools of Financial management: These are some of the tools of management of finance. With these tools firm can keep an eye on the effective and efficient utilization of finance so that corrective action can be taken on time.

Ø Ratio Calculation

Ø Capital Budgeting Decision

Ø Fund Flows analyses

Ø Portfolio Analyses

Ø Analyses of market scenario

Ø Study of industry

Objective of Financial management:

Ø Profit maximization

Ø Wealth maximization

Ø Survival of the company

Ø Maintenance of proper cash flow

Ø Minimum cost of capital

Principles of Financial management:

· Time Value of money

· Risk return trade off

· Liquidity v/s profitability

· Valuation

Principles of management:

· Planning

· Organizing

· Directing

· Controlling

Above mentioned are the principles of both finance and management, which can be coordinated with the objective of the financial management so that greater result were produced, through some sorts of examples given there under

a) Suppose if a firm have to borrow money, firstly it has to planned that how much of money to be raised, from which source to be raised, so that there will be a good capital structure and result in achievement of one of the objective of minimizing cost of capital.

b) Suppose that there are two investment opportunities for a firm, so while deciding in which project to be invest firm should keep in mind the objective of wealth maximization, at the same time considering the effect of time value of money. Etc..