Learn, Explain, Meaning, Definition of Financial Management!

Financial management refers to the efficient and effective management of wealth (money) in order to fulfill the objectives of the organization. This is the special task associating directly with top management. The significance of this function is not seen in the ‘line’, but in the overall capacity of the company ‘staff’ is also in capacity. It is defined differently by various experts in the field. Also learn, Meaning, FM in Hindi (वित्तीय प्रबंधन की परिभाषा), What is Definition of Financial Management?

Financial management is an integral part of overall management. It is concerned with the duties of the financial managers in the business firm. The term financial management has been defined by Solomon, “It is concerning with the efficient use of an important economic resource namely, capital funds”. The most popular and acceptable definition of financial management as given by S.C. Kuchal is that “Financial Management deals with the procurement of funds and their effective utilization in the business”.

Howard and Upton: Financial management “as an application of general managerial principles to the area of financial decision-making.

Weston and Brigham: Financial management “is an area of financial decision-making, harmonizing individual motives and enterprise goals”.

Joshep and Massie: Financial management “is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations.

Thus, Financial Management is mainly concerned with the effective fund’s management in the business. In simple words, Financial Management as practiced by business firms can call as Corporation Finance or Business Finance. Also read, How to Explain Nature and Scope of Financial Management?

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Definition of Financial Management:

Financial management could define as follows:

Financial management is that branch of general management, which has grown to provide specializing and efficient financial services to the whole enterprise; involving, in particular, the timely supplies of requisite finances and ensuring their most effective utilization-contributing to the most effective and efficient attainment of the common objectives of the enterprise.

Some prominent definitions of financial management are citing below:

“Financial management is concerned with managerial decisions that result in acquisition and financing of long-term and short-term credits for the firm. As such, it deals with situations that require selection of specific assets and liabilities as well as problems of size and growth of an enterprise. Analysis of these decisions is based on expected inflows and outflow of funds and their effects on managerial objectives.” —Philppatus

Analysis of the above Definitions:

The above definitions of financial management could analyze, in terms of the following points:

(i) Financial management is a specialized branch of general management.

(ii) The basic operational aim of financial management is to provide financial services to the whole enterprise.

(iii) One most important financial service by financial management to the enterprise is to make available requisite (i.e. required) finances at the needed time. If requisite funds are not made available at the needed time; significance of finance is lost.

(iv) Another equally important financial service by financial management to the enterprise is to ensure the most effective utilization of finances; but for which finance would become a liability rather than being an asset.

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(v) Through providing financial services to the enterprise, financial management helps in the most effective and efficient attainment of the common objectives of the enterprise.

Points of Comment:

(i) In big business enterprises, a separate cell, calls the Finance Department is creating to take care of financial management, for the enterprise. This department is heading by a specialist in Financial Management-calls the Finance Manager.

However, the scope of authority of the finance manager very much depends on the policies of the top management; finance being a crucial management function.

(ii) In the present-day times, at least, financial management represents a research area; in that, the finance manager is always expecting to research into new and better sources of finances and into best schemes for the most efficient and profitable utilization of the limited finances at the disposal of the enterprise.

(iii) There are three major areas of decision making, in financial management, viz:

(1) Investment decisions i.e. the channels into which finances will invest-base on ‘risk and return’ analysis, of investment alternatives.

(2) Financing decisions i.e. the sources from which finances will raise-base on ‘cost-benefit analyses’ of different sources of finance.

(3) Dividend decisions i.e. how much of corporate profits will distribute, by way of dividends; and how much of these will retain in the company-requiring an intelligent solution to the controversy ‘Retention vs. Distribution’.

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