Finance management means the management of finance of a business or organization in order to achieve financial objectives. In an organization the key objectives of financial management would be to create wealth for business, generate cash and gain maximum profits from the investments of the business considering the risks involved.
Finance may be defined as the art and science of managing money. It includes financial service and financialinstruments. Finance is also referred as the provision of money at the time when it is needed.
DEFINITION OF FINANCE
The concept of finance includes capital, funds, money, and amount.
CORRECT DEFINITION OF BUSINESS FINANCE
“Business finance is that business activity which concerns with the acquisition andconversation of capital funds in meeting financial needs and overall objectives of a business enterprise”.
DEFINITION OF FINANCIAL MANAGEMENT
Financial management “as an application of general managerial principles to the area offinancial decision-making.
SIGNIFICANCE AND SCOPE OF FINANCIAL MANAGEMENT
From the point of view of a corporate unit, financial management is related not only to ‘fund-raising’ but encompasses wider perspective of managing the finances for the company efficiently. In the developed state of a capital market, raising funds is not a problem; the real problem is to put the capital resources to efficient use through effective financial planning, financial organisation and financial control and to deal with tasks like ensuring the availability of funds, allocating them for different uses, managing them, investing funds, controlling costs, forecasting financial requirements, doing profit planning and estimating rate of return on investment and assessment of working capital etc.
Financial management deals with the planning and control of firm’s financial resources.
The fundamental objective of financial management is wealth maximisation.
The following are the main objectives of financial management which ultimately leads to wealth maximisation in the long run:
1) Proper Utilisation of Funds leading to a value addition.
2) Maximisation of Return on Investment (ROI): It is one of the primary objectives of every firm to generate higher return on investment so that then it need not depend on external borrowings, and at the same time can reward its shareholders in terms of dividends and bonus shares.
3) Survival: The survive means to stay alive. The problem of survival is common to all types of business units and arises due to increased competition, change in consumer behaviour or technology, Labour problem and so on. It is an immediate objective of a firm. Even the once powerful and prosperous companies battle it out for their survival in this competitive world.
4) Cash Flow: Another short term or immediate objective of financial management is to ensure availability of adequate cash flow to meet its working expenses such as payment of raw materials, wages and salaries, rent, etc. An organisation with goods cash flows can take advantage of many opportunities such as availing of cash discounts on purchases, bulk buying, offering credit terms to customers, etc.
5) Break-Even Point: It is one of the important short term objectives of financial management. The break-even point refers to a situation when a firm is able to achieve a certain level of sales turnover to cover all costs. There is neither profit nor loss. Every business must aim to achieve break-even level as early as possible because once this point is achieved then it can begin to make profits sooner or later in the future.
6) Minimum Profits: The firm must be able to earn minimum profits in the short term which must be able to cover up the cost of capital, whether dividends are paid or not. It also motivates owners/management to work hard. Profit is justified as a return on investment. If profit is not remunerative, it would make people withdraw their investment and discourage future investors.
7) Ensure Co-ordination: To ensure proper co-ordination in the activities of finance departments with those of other departments in the organisation is one of the very important objectives.
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