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Financial Management - Finance – An Introduction

Significance and Definition - Financial Management – Nature And Scope

   Posted On :  19.06.2018 09:22 pm

Financial management has undergone fundamental changes as regards its scope and coverage.

Financial Management – Significance

 
Financial management has undergone fundamental changes as regards its scope and coverage. Financial management is the application of planning and control to the finance function. It helps in profit planning, measuring costs, controlling inventories, and accounts receivables. It also helps in monitoring the effective deployment of funds in fixed assets and in working capital. It aims at ensuring that adequate cash is on hand to meet the required current and capital expenditure. It facilitates ensuring that significant capital is procured at the minimum cost to maintain adequate cash on hand to meet any exigencies that may arise in the course of business. Financial management helps in ascertaining and managing not only current requirements but also future needs of an organization.
 
1. It ensures that funds are available at the right time and procurement of funds does not interfere with the right of management / exercising control over the affairs of the company.
 
2. It influences the profitability / return on investment of a firm.
 
3. It influences cost of capital. Efficient fund managers endeavour to locate less cost source so as to enhance profitability of organization.
 
4. It affects the liquidity position of firms.
 
5. It enhances market value of the firm through efficient and effective financial management.
 
6. Financial management is very much required for the survival, growth, expansion and diversification of business.
 
7. It is required to ensure purposeful resource allocation.
 

Financial Management – Definition

 
According to Weston and Brigham, financial management is an area of financial decision making, harmonizing individual motives and enterprise goals.
  
 In the words of Phillippatus, financial management is concerned with the managerial decisions that result in the acquisition and financing of long-term and short-term credits for the firm. As such it deals with the situations that require selection of specific assets / combination of assets, the selection of specific liability / combination of liabilities as well as the problem of size and growth of an enterprise. The analysis of these decisions is based on the expected inflows and outflows of funds and their effects upon managerial objectives.
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