What is Financial Management?

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Financial management: in general financial management means management of money matter of the organization .the term financial management is defined differently by different authors. Now let us know the some of definitions given by the authors

According to Solomon

“Financial management is concerned with the effective utilization of economic resource, namely

 Capital funds”

According to philliptous

“Financial management is concerned with the managerial decisions that are results from the use of

Capital funds”

The most suitable definition to financial management is procurement of funds and their effective utilization in business

Evolution of financial management:

There are three stages in financial management evolution

  • First phase:  in this phase financial management is consider in some significant, occational situations like merger, amalgamation etc………
  • Second phase:  in this phase F.M  IS use full in day-to-day desiccation making of top level management. The main focus of decision making is towards shareholdes, lendars
  • Third phase:  in this phase financial management is the most essential in orginisation. In this phase financial analysis is must for every company. Many theories are developed in this phase. Third phase is the present phase

Aspects of financial management:

There are two main aspects in F.M

  1. Procurement of funds
  2. Effective utilization of funds

Procurement of funds:

It involves

  • Finding of source for funds i.e. equity, debt……….
  • Determination of financial mix i.e. equity and preference,

                                                         Preference and debt

                                                           Equity and debt

                                                           Equity, preference, debt

  • the different source of funds are different in characteristic like cost,risk,control

In risk point of view equity shares are recommendable as compared to lones because there is no question for repayment in case of equity shares except in case of liquidation but lone amount is repayable as per the terms of agreements

In cost point of view lone recommendable because interest on lone is allowed as tax exemption because it is an expense .but dividend paid on equity shares are not allowed on exemption. And also dividend expectations of share holders are higher then interest rates on lones

            Effective utilization of funds:

Finance manager has the responsibility of not only procurement of funds but also their effective utilization because procurement of funds involves some cost.

So finely the financial growth of an organization is depend on its strategy in financial management

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