Nature And Scope of Financial

Management
Financial management is such a
managerial process which is concerned
with the planning and control of
financial resources.
In the initial years of its development,
financial management was concerned
only with collection of funds for
business. But according to modern
viewpoint, not only collection of
funds
but
also
their
proper
utilization are the basic functions
of financial management.

 Financial manager

has become as
important constituent of business and he provides his
significant contribution to all business activities. He
estimates the requirement of funds, plans the
different sources of funds and performs the functions
of collection of funds and their effective utilization. As
all the business activities like marketing, purchase,
production etc include the creation and utilization of
funds, financial manger must be clear about his duties
and responsibilities in relation to these activities.

Characteristics of Modern
Approach
1.
2.

More Emphasis on Financial Decision

3.
4.
5.

Continuous Function

Financial Management as an Important

Component of Business Management
Broader View
Measure of Performance

Modern Approach to Finance Function

According to this approach, financial management

considers the broader and analytical viewpoint.
According
to
this
approach,
financial
management is concerned with both acquisition
of funds and their effective and optimum
utilization. This viewpoint not only considers the
sporadic events but also the long term and
short-term financial problems. Three decisions
are taken under financial management :

Finance Function

i. Investment Decision
ii. Financing Decision
iii. Dividend Decision

Meaning of Financial Management

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.

Functions of Financial
Management
1.
2.
3.
4.
5.
6.

Financial Planning
Financial Decision
Investment Decision
Dividend Policy Decision
Financial Control
Incidental Functions

Objectives of Financial
Management
(i) Profit Maximization Approach
(ii)Wealth Maximization Approach

(i) Profit Maximisation

Approach
According to this approach, a firm should undertake
all those activities which add to its profits and
eliminates all others which reduce its profits.
Criticism

(i)Ambiguity
(ii)Time Value of Money
(iii)Risk Factor

Wealth Maximisation Approach :

- According to this approach, financial management
should take such decisions which increase net
present value of the firm.

Importance of Financial Management

(1)Significant part of Business Management

(2)Liquidity and Profitability
(3)Value of firm
(4)Centralized Nature
(5)Benefits to shareholders Benefits to
Investors

(6)Other Benefits