FINANCIAL MANAGEMENT
                     FINANCIAL 
MANAGEMENT
Management is concerned 
with the flow of funds and 
involves decisions relating to 
the procurement of funds, 
investment of funds in long-
term and short-term assets, 
and distribution of earnings to 
owners called financial 
management. 
INTRODUCTION
FINANCIAL MANAGEMENT IS THE LIFEBLOOD OF 
BUSINESS. Interaction of arranging, sorting out, 
controlling, and checking monetary assets so 
as to accomplish authoritative objectives and 
goals. “FINANCIAL MANAGEMENT is the activity 
concerned with planning, raising, controlling 
and administering funds used in business”. 
“FINANCIAL MANAGEMENT is the operational 
activity of a business that is responsible for 
obtaining and effectively utilizing the funds 
necessary for efficient operations”.
SCOPE OF FINANCIAL MANAGEMENT
• Estimation of financial management: FM involves the estimation of 
both long-term and short-term financial requirements. It is possible 
only by studying the present and future needs of funds.
•  The decision regarding optimal capital structure: Capital structure 
is the proportion of different securities used for financing the 
operation of the business. FM involves various decisions for the 
optimal capital structure. 
• Selection of sources of finance: there are many sources of finance 
such as shares, debenture, etc. FM is concerned with the selection 
of the best sources of finance. 
• Maintenance of liquidity: Liquidity refers to adequate cash available 
in business every time to meet the day-to-day needs of concern. FM 
involves maintaining liquidity in business for smooth running.
• Easy availability of funds: FM aims are easily available for funds. 
The management ensures that funds should be available whenever 
the need arises. 
• Optimal use of funds: FM aims for optimum use of funds by 
maintaining a balance between liquidity and solvency. 
FINANCIAL DECISIONS 
(1) Investment decisions: where to invest. It refers to funds in short-
term and long-term assets.
 A. Long haul investment choices: likewise called capital budgeting 
decisions  It refers to investing in fixed assets such as buildings, 
furniture, machines, etc     
 B. Short-term investment decisions: it is also called working capital 
decisions. it refers to investing in current assets. 
(2) Finance Decisions: It refers to decisions about the best sources of 
finance. It means choosing or selecting the best sources of finance for 
the raising of finance for the short term or long term. It must ensure 
easy availability of funds. 
 
(3) Dividend Decisions: it refers to decisions about how much finance is 
distributed to shareholders and how much is retained in the business 
for a long period to meet any uncertainty.   
FINANCE FUNCTION 
• Part of the financial aspects concentrates on the administration of cash and different 
resources.
• It is considered the lifeblood of business. 
• It provides access to all other resources required for business. 
• Raising finance 
• Investing in assets 
• Distributing returns earned from assets to shareholders 
• Determining the financial needs 
• Financial Decision 
• Investing Decision 
• Working capital decisions 
• Dividend policy decision 
• Financial control 
• Routine capabilities: for the robust execution of the money capabilities, specific 
standard capabilities must be acted in the ordinary course of the business. the 
standard capabilities are :
• Management of money receipts and installments and shielding of money balance
• Opening bank accounts and managing them 
• Safeguarding of securities, insurance policies, and other valuable documents.
• Maintaining records and preparation of reports. 
• Laying out a legitimate arrangement of inside review.
OBJECTIVE OF FINANCIAL MANAGEMENT 
It is the obligation of the top administration to set out the targets or 
objectives which are to be accomplished by the business.
• Profit Maximization :
• Measurement of performance 
• Effective distribution and usage of assets
• Maximization of social welfare 
• Source of incentive 
• Helpful in facing adverse business conditions
• Helpful in the growth of the firm.
• Wealth Maximization :
This approach is now universally accepted as an appropriate criterion for 
making financial decisions as it removes all the limitations of the profit 
maximization approach. 
It is also known as the net present value (N.P.V) maximization approach.
The contrast between the current worth of future money inflows 
produced by a resource and its expense is known as net present worth 
(N.P.V)
PROFIT MAXIMIZATION 
VERSUS WEALTH 
MAXIMIZATION: - 
The abundance boost approach is better than the 
benefit augmentation approach.
It has the following advantages in its favor 
• It uses cash flows instead of accounting profits: it 
gives due importance to the time value of money. 
• It gives due significance to the installment of 
ordinary profits
• It gives due importance to risk factors and analyses 
risk and uncertainty. 
FINANCIAL FEATURES 
• Indispensable organ of business 
management.
• Continuous process.
• Different from accounting 
functions.
• Coordination with other 
departments.
• Decision-making for the top level.