What is Financial Management Process?

Financial management means planning, organizing, directing and controlling the financial activities of the organization, this whole process of managing funds is called financial management process. Financial management helps the organization to manage the flow of funds and make sure returns on investment.

Definition of Financial Management by Authors

According to Ezra Solomon

  • “Financial management is properly viewed as an integral part of overall management rather than as a staff especially concerned with funds raising operations.”

According to Dr. S. N. Maheshwari,

  • “Financial management is concerned with raising financial resources and their effective utilization towards achieving the organizational goals.”

According to Solomon,

  • “Financial management is concerned with the efficient use of an important economic resource, namely, capital funds.”

Objectives of Financial Management

  • Profit maximization :  

Profit maximization is the main objective of financial management. Because every company invest a huge amount, so the company wants to return on investment. A financial manager should take proper decisions in order to maximise profit in short and long term.

  • Wealth maximization :

Wealth maximization of shareholders shares is also the main objective of financial management. Because shareholders provide their money to the company. So, it is the responsibility of financial managers to maximize their shares value.

  • Proper mobilization :

Mobilisation of finance is an important objective of financial management. Finance manager should decide the best sources of finance which would be the cheaper and high volume of funds. Finance manager collects funds from various sources i.e, shares, debentures, bank loans, etc.

  • Effective utilisation of funds :

After getting funds, the finance manager of the company should utilize effectively. finance manager must not invest funds in unrealistic and unprofitable projects.

  • Create goodwill :

Financial manager should give more profits to the company and shareholders. if the finance manager will able to do goodwill of the company will also increase. that will help the company to collect funds in the future.

Functions of Financial Management in an Organization

  • To establish of capital requirements of the company.
  • To control Finacial decision of company.
  • To manage the cash flow of company.
  • To Determine the capital structure of the company.
  • To utilization of funds effectively.

Importance of Financial Management in Points

  • Financial management helps to Set up a financial goal.
  • Financial management improves the standard of living.
  • Financial management helps the effective utilization of resources.
  • Financial management clears the sources of financing.
  • Financial management helps to make a dividend decision.
  • Financial management helps to understand investment opportunities.

Scope of Financial Management in Points

  •  Investment Decision :

 The investment decision includes the evaluation of risk, measurement of cost of capital and estimation of expected benefits from a project.

  • Financing Decision :

Finance decision relates to raising funds from various sources of finance that will depend on the type of sources, the cost of financing etc.

  •  Dividend Decision :

The finance manager has to take the decision to the distribution of net profit.

Role of Financial Management in Business

  • Financial Management helps business to manage the flow of the funds.
  • Financial management helps to collect Financial Resources to the business.
  • Financial management makes the Interdependence to the business.
  • Financial management brings investment for the business.

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