Meaning of Financial Management

Principle & Practice of Management

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Meaning of Financial Management

It would be worthwhile to recall, what Henry Ford had once remarked: “Money is an arm or a leg. You either use it or lose it”.This statement, though apparently simple, is quite meaningful. It brings home the significance of money or finance. In the modern money-oriented economy, finance is one of the basic foundations of all kinds of economic activities, it is the master key which provides access to all the sources for being employed in manufacturing and merchandising activities. The Sanskrit saying “art haha archival” (….), which means “finance reigns supreme”, speaks volumes for the significance of the finance function of an organisation. It has rightly been said that business needs money to make more money. However, it is also true that money begets more money, only when it is properly managed. Hence, efficient management of finances. In conclusion, we can say that “Finance is the backbone of every business”.
Financial Management
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 enterprises.
According to the Encyclopedia of Social Sciences, Corporate finance deals with the financial problems of corporate enterprises. Problems include financial aspects of the promotion of new enterprises and their administration during early development, the accounting problems connected with the distinction between capital and income, the administrative questions created by, growth and expansion, and finally the financial adjustments required for bolstering rehabilitation of a corporation which has come into financial difficulties. Management of all these is financial management. Financial management mainly involves, raising of funds and their effective utilisation with the objective of maximising shareholders’ wealth. To quote, Joseph and Massie, “Financial Management is the operational activity of a business that is responsible for obtaining and effectively utilising the funds necessary for efficient operations”.
According to Van Horne and Wachowicz, “Financial Management is concerned with the acquisition, financing and management of assets with some overall goal in mind.” Financial manager has to forecast expected events in business and note their financial implications. First, anticipating financial needs means estimation of funds required for investment in fixed and current assets or long-term and short-term assets. Second, acquiring financial resources once the required amount of capital is anticipated, the next task is acquiring financial resources i.e., where and how to obtain the funds to finance the anticipated financial needs and the last one is, allocating funds in business – means allocation of available funds among the best plans of assets, which are able to maximize shareholders’ wealth. Thus, the decisions of financial management can be divided into three viz., investment, financing and dividend decision.