Question

Discuss your understanding of the term financial management

Answer 1

Financial Management , in simple word is managing funds.It is mainly concerned with :

• Efficient Acquisition i.e Financing.
• Allocation of Funds i.e Investment.
• Managing Fund with an objective to make profit i.e Dividend.

In other words , focus of financial management is to address three major financial decisions namely investment , financing and dividend decisions.Therefore, we can say that Financial Management is concerned with the managerial decisions that results in acquisition and financing of short and long term credits for the firm.

There are 2 basic aspects of financial management

1.) Procurement of Funds : Funds can be obtained from different sources having different characteristics in terms of risk,cost and control.The funds raised from the issue of equity shares are the best from risk point of view .However it is most costly source of financing.On the other hand debentures are less costly but more riskier than equity.Thus risk , cost and control considerations must be considered by financial manager while procuring funds.

2.) Utilisation of Funds : The finance manger has to ensure that funds are not kept idle or there is no improper use of funds.The funds are invested in manner such that returns generated are higher than cost of capital.