The present age is the age of industrialization. Large industries are being established in every country. It is very necessary to arrange finance for building, plant and working capital, etc. for the established of these industries. How much of capital will be required, from what sources this much of finance will be collected and how will it be invested, is the matter of financial management.
Financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources. It was a branch of economics till 1890, and as a separate discipline, it is of recent origin. Still, it has no unique body of knowledge of its own, and draws heavily on economics for its theoretical concepts even today.
In general financial management is the effective & efficient utilization of financial resources. It means creating balance among financial planning, procurement of funds, profit administration & sources of funds.
Definitions of financial management:
- According to Solomon, “Financial management is concerned with the efficient use of an important economic resource, namely, capital funds.”
- According to J. L. Massie, “Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operation.”
- According to Weston & Brigham, “Financial management is an area of financial decision making harmonizing individual motives & enterprise goals.”
- According to Howard & Upton, “Financial management is the application of the planning & control functions of the finance function.”
- According to J. F. Bradley, “Financial management is the area of business management devoted to the judicious use of capital & careful selection of sources of capital in order to enable a spending unit to move in the direction of reaching its goals.”
Main features of financial management:
On the basis of the above definitions, the following are the main characteristics of the financial management-
- Analytical Thinking-Under financial management financial problems are analyzed and considered. Study of trend of actual figures is made and ratio analysis is done.
- Continuous Process-previously financial management was required rarely but now the financial manager remains busy throughout the year.
- Basis of Managerial Decisions- All managerial decisions relating to finance are taken after considering the report prepared by the finance manager.The financial management is the base of managerial decisions.
- Maintaining Balance between Risk and Profitability-Larger the risk in the business larger is the expectation of profits. Financial management maintains balance between the risk and profitability.
- Coordination between Process- There is always a coordination between various processed of the business.
- Centralized Nature- Financial management is of a centralized nature. Other activities can be decentralized but there is only one department for financial management.