Financial Management

Financial management is two way process in which finance manager obtain fundsand money at low cost and risk and
use it in higher earning project at minimum risk. Expert says that it is science to earn maximum return at minimum risk
and control. In financial management, following decision is taken technically.
What is Financial Management?
Financial management is the planning of the requirement of capital investment with the objective of earning higher
return incurring the least cost and efficient management of the financial management of the financial affairs of any
business enterprise.
According to the J.J Hampton "Financial management is an applied field of business administration."
Financial management may be defined as, "Financial management is the integral part of general management engaged
in raising of finance, allocation and utilization of finances or funds and other managerial function for the overall growth
of the enterprise."
Financial management has some basic features. Financial management is an applied form of general management. It
concerned with the procurement and conversation of capital funds to meet the financial needs of the business
enterprise and to achieve the overall objectives of the firm
Ist To Get Funds from Different Sources:This decision is very helpful for development of company. You know that if you start even a small business, you need
fund for paying capital and revenue expenditures. But you have to give its cost. You have also to take the risk of its

repayment; it may possible that at the time of repayment, you have no money in your pocket. It is the risk of solvency.
You also have to see who will control your business after taking fund. We explain our views to make understand to you.
If you choose share capital as the source of funds:
Suppose, you have issued new shares and get fund as share capital, at that time, we can analyze its cost, risk and
control with following ways:(a) Cost
Cost of acquiring share capital is high than acquiring debt because its cost is dividend and dividend is not deducted out
of profit as indirect expenses. It is division of net profit after tax. If we get debt, we pay interest before tax, it means we
have to pay tax high, if we get share capital and pay dividend. Thus cost of this source of funds is high.
(b) Risk
Risk means probability of loss in future. But, you have chosen this source, you will find no risk because we do not repay
to shareholders. We only repay balance amount at the time of winding up of company.
(c) Control
If company issues new share to new shareholders instead of existing shareholders for getting funds from new
shareholders, it will reduce the control of existing shareholders.
If you choose bond or debenture or take loan:
At that time, companys cost will reduce but risk of repayment will increase. If company has no liquidity at the time of
repayment company will be liquidated.
There are also many other sources but these sources have also some strength point and weak point. Before choosing
best source deep analysis is needed.

Functions of Financial Management

Financial management performs different function for the effective management of funds of any organization. Financial
management is concerned with the supervision of the capital invested in the business enterprise,
allocation of finance to resources and overall increase in the value of business.
Jim Mc Menamin proposes the following interrelated activities of financial management-Financial analysis, financial
decision making, financial planning, and financial control. The function of financial management include the followingResource mobilization from the economy
Resource development
Resource generation and distribution for growth and risk comparison
Now we will discuss the finance related functions of financial management. Basically these decisions are divided under
three broad categories. These are financial decision, investment decision and dividend decisions. We will discuss them
one by one.
Financial Decision- Financing decision of an enterprise includes decision for short term capital and long term capital
requirement. Financing decision include decision upon the needs and source of new outside financing and caring on
negotiations for new outside financing. Financing means procurement of finance at most convenient and economic
rates.
Investment Decisions- Funds acquired from different sources are to be invested in profitable projects so that
maximum profit can be earned and the value of the wealth becomes maximum. Long term funds are invested for the
acquisition of fixed assets and current assets also. The investment of funds in different projects should be made
carefully so that the funds can be utilized in the maximum possible ways. Capital budgeting techniques is used or
making investment decisions. Investment decision considers the management of current assets such as cash,
marketable securities, etc. Capital budgeting which includes identification, selection, implementation of capital projects,
etc. and management of mergers, reorganization, disinvestment, etc.

Dividend Decisions- The financial managers takes dividend decisions. For taking decision in respect of dividend, the
factor to be consider include- availability of cash, tax position of the shareholders, trend of earnings, requirements of
funds for the future, etc. Dividend decision considers the allocation of net profit. Dividend decision gives emphasis on
the checking on financial performance. The financial manager takes initiatives to take proper dividend decisions as to
the amount of dividend to be paid and the time of payment of dividend. He tries to set balance between dividend
retention and distribution. Dividend decisions are taken considering the overall liquidity and profitability of the
enterprise. Dividend decisions are taken taking into account the disposition of profits between dividend and retained
earnings.