Meaning, Definitions and Function of Financial Management.

Meaning Concept and Definitions of Financial Management

#Meaning of Financial Management.

Financial management is concerned with those managerial activities, which are related to procurement and best utilisation of funds for the business purpose. It deals with planning, organising, directing, controlling and co-ordinating the financial activities of the enterprise in the best possible manner.

#Definitions of Financial Management.

Financial management has been defined by various experts as under:

1. In the words of J.L. Massie," Financial management is the operational activity of a business that is responsible for obtaining and effectively utilising the funds necessary for efficient operations."

2. In the words of Weston and Brigham, " Financial management is an area of financial decision-making harmonising individual motives and enterprise goals." 

3. In the words of J.F. Bradley, "Financial management is that area of business management devoted to a judicious use of capital and a careful selection of sources of capital in order to enable a spending unit to move in the direction of reaching its goals."

4. In the words of Howard Upton, " Financial management involves the application of general management principles to a particular financial operation." 

On the basis of above definitions, we can say that, "Financial management deals with planning, organising, directing and controlling financial activities like procurement and utilisation of funds of an enterprise."

#Functions of a Financial Management.

Financial manager is the head of the finance department of a business enterprise. He manages the financial affairs of the business under the overall guidance and control of the chief executive.

The main function of Financial Management or a financial manager are as follows- 

1. Estimating Capital requirement- He determines the amount of capital funds required in a business. He prepares the financial budget keeping in view the funds for both long-term (fixed capital) and short-term (working capital) requirements. 

2. Determining the sources of funds- Financial manager determines the various sources from where the funds are to be procured. Various sources are shares, debentures, loans from financial institution, public deposits etc. He has also to decide the type of securities to be issued and the relative proportion between them.

3. Raising of funds- The next function is to collect the required funds. It involves negotiations with the financial institution, issuing prospectus, deciding the terms and conditions of securities, appointment of brokers and bankers etc. 

4. Utilisation of funds- To utilise the available funds in proper way is of prime importance. Hence, it requires careful assessment of alternative projects to ensure profitability, liquidity and safety of a business.

5. Disposal of surplus- The financial manager decides the distribution of surplus. He must ensure a fair return to investors on one hand and enough funds to meet the future needs of the enterprise. It also involves decisions regarding dividend policy, ploughing back of profits and creation of reserves.

6. Management of cash- He must ensure that sufficient cash is available at all times to pay wages and salaries, to purchase raw materials, to pay creditors and to meet day-to-day expenses. Cash flow statements are used to forecast future inflows and outflows of cash.

7. Financial Controls- The financial manager must exercise proper control to ensure that various financial decisions and activities of a business yield maximum advantages to enterprise. He should check the misuse of funds. Ratio analysis, budgetary control, profit planning techniques can be used for this purpose.