Financial Management Meaning :
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| Financial Management |
Financial Management: An Introduction
Finance is the life blood of modern business. It is as important for industry and commerce as oil to lubricate wheels, marrow for bones and blood for nerves. In the present time, finance is needed to start, run and develop smoothly. In the absence of finance, the best plans remain only on paper and even if a plan is implemented due to lack of adequate finance, many difficulties arise in its operation and control. Inadequacy of finance is not the reason for business failure, but it is the mismanagement of finance that is responsible for it. An organization can survive and grow only when it makes the best use of its funds. So it is right to say that without adequate finance no business can survive and without effective financial management no business can prosper and develop. In other words, the success of a business depends upon adequate supply of finance and effective management of finance.
Financial Management: Meaning and Definition
As mentioned earlier, the study of finance became completely analytical and judgmental rather than descriptive. And the scope of this subject has also expanded. Therefore, under the traditional ideology, in which 'Corporation Finance' or 'Business Finance' used to be studied. Under modern ideology, it is called 'managerial day'. Let us study as 'Managerial Finance) or 'Financial Management'. The word financial management is made up of two words 'manageable' and 'management'. The word financial means to mobilize the means of obtaining money and allocating these resources on the basis of anticipating the monetary needs of the business. The word management means any In order to achieve the objectives of the organization, the planning, organization, coordination and control of human activities and physical resources is concerned. Management In other words, financial management is in the form of means and means of money management, that is, the determination, receipt, allocation and utilization of financial resources.
Thus, financial management is concerned with those managerial decisions that result in the attainment of long-term and short-term assets and finances of the organization. The analysis of these decisions is based on the expected inflows, outflows of funds and their impact on managerial objectives. In the words of Howard and Upton, “Financial management is the application of planning and control functions to the financial functions.” According to Wheeler, “Financial management refers to the action which is taken by the organization of capital funds to meet the objectives and financial needs of the enterprise.” concerned with collection and their administration. In the words, “Financial management is that area of business management which is concerned with the judicious use of capital and the careful selection of financial sources of financial resources, so as to direct the business towards the fulfillment of its objectives.” J. Ale. According to Massey, “Financial management is that operational activity of business which is responsible for obtaining the necessary finances for the efficient operation of the enterprise and for its effective use”.
On the basis of the above discussion, it can be said in brief that financial management is a functional area of business management. It is a part of the whole management. It is mainly concerned with the receipt of funds by the most suitable method from the economic point of view, beneficial use of these funds, planning of future activities and control of current results by financial accounting, cost accounting, budgeting, statistics and other methods.
Characteristics of Financial Management
Modern thought has made the role of finance function or financial management very important in the field of business management. Now along with arranging funds in finance, the responsibility has also come to use them judiciously. It has become a continuous practical task, not a one-time task. On the basis of this ideology, the main features of financial management or finance work are being mentioned below.
1. Essential Part of Business Management
Financial management is an integral part of business management. If it is considered as the most important part of management, then it will not be an exaggeration, because the importance of finance is paramount in the organization and operation of business from beginning to end. Money is associated with every action of business. For example, it is the responsibility of the production manager to consider from a technical point of view the machines, plants, equipment, raw materials, fuels etc. required for production. Final decisions regarding these will not be taken until the Finance Manager gives his due advice on the financial aspects related to them.Is. Ezra Solomon has rightly said in this view that, "Financial management is not seen as a staff activity concerned with managing funds but as an integral part of overall management." " That is why the financial manager is one of the active members of the top management team.
2. Continuous Administrative Function
According to the traditional ideology, the finance function was limited to arranging funds only. Therefore, this work was generated only in special circumstances such as promotion, reorganization, merger, integration etc. But according to the modern ideology, finance work is a continuous administrative process, because in the present time the responsibility of collection of funds and their judicious use for successful operation of business also comes in its scope. Along with capital budgeting, it also has to perform the task of managing working capital, which is a constant headache for the financial manager of a large enterprise.
3. Scientific and Analytical:
Finance function in its present form is less descriptive and more scientific and analytical, whereas traditional finance function was more descriptive and less analytical. Today, while taking various financial decisions, there is a need for financial analysis and various alternatives.
1. Howard and Upton. An Introduction to Business Finance. p4
2.Wheeler, Business An Introductory Analysis. p. 3395 Joseph F. Bradley: Administration of Financial Management p.4
3 Joseph L. Massic. "Financial Managemem p.5
Modern mathematical and statistical methods are used for evaluation. That is why Cohen and Robins considered child management as both an art and a science. According to him, "Managing the finances of a business organization is an art as well as a science. It requires a great grasp of the situation and analytical skills. Along with an abundant knowledge of the methods and techniques of financial analysis." And there is also an expectation of proper review of their practical use and the results obtained.
4. Centralized Nature
In all the functional arcas of management, financial management or finance function is basically centralized in nature. Decentralization of finance function is not desirable like other functions of the enterprise such as production, marketing, service, because only by centralization of finance function the objectives of business can be achieved more effectively as Jack O. Vance has said, “Decentralization of marketing and production functions is possible in a modern industrial enterprise, but the state of financial coordination and control can be established only through centralization. Finance work in business is compared to the heart institution of the human body. Whose basic nature is centralized and which establishes coordination and control in physical and mental activities by the nervous systems spread in different parts of the body.
5. Wide Scope
The field of financial management is very broad and complex. Its scope, as in ancient times, is not limited to obtaining capital only to meet the long-term financial needs of the enterprise, but its scope includes obtaining funds for meeting the short-term and long-term needs of the enterprise, proper allocation of funds and their optimum utilization. also comes. In addition, it is also responsible for accounting, capital budgeting, auditing, cost control, cash and credit management and other day-to-day operations.
6. Applicable to All Types of Organization
Financial management applies to all types of manufacturing and service organizations, regardless of their size, nature, ownership and control. To say that financial management is applicable only to private organizations established with the aim of making profit is to narrow the scope of this subject. According to Raymond Chambers, “Financial management can be applied to any type of undertaking or organization, regardless of its purpose or constitution.”
7. Different from Accounting Functions
Many people consider finance function and accounting function to be the same on the basis of many terms and similar use of records. But the finance function is different from the accounting function. Basically the function of accounting is to collect data whereas the function of finance is related to the analysis of data for decision making.