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/ Financial Management - Meaning, Scope, Objectives &
Functions

Financial Management -
Meaning, Scope, Objectives
& Functions
Meaning of Financial Management
Financial Management means planning, organizing, directing
and controlling the financial activities such as procurement and
utilization of funds of the enterprise. It means applying general
management principles to financial resources of the
enterprise.

Scope/Elements of Financial Management

1. Investment decisions includes investment in fixed
assets (called as capital budgeting). Investment in
current assets are also a part of investment decisions
called as working capital decisions.

2. Financial decisions- They relate to the raising of finance

from various resources which will depend upon decision
on type of source, period of financing, cost of financing
and the returns thereby.

3. Dividend decision- The finance manager has to take

decision with regards to the net profit distribution. Net
profits are generally divided into two:

a. Dividend for shareholders- Dividend and the rate of

it has to be decided.
b. Retained profits- Amount of retained profits has to
be finalized which will depend upon expansion
and diversification plans of the enterprise.

Objectives of Financial Management

The financial management is generally concerned with
procurement, allocation and control of financial resources of a
concern. The objectives can be-

1. To ensure regular and adequate supply of funds to the

concern.

2. To ensure adequate returns to the shareholders which

will depend upon the earning capacity, market price of
the share, expectations of the shareholders.

3. To ensure optimum funds utilization. Once the funds are

procured, they should be utilized in maximum possible
way at least cost.

4. To ensure safety on investment, i.e, funds should be

invested in safe ventures so that adequate rate of return
can be achieved.

5. To plan a sound capital structure-There should be sound

and fair composition of capital so that a balance is
maintained between debt and equity capital.

Functions of Financial Management

1. Estimation of capital requirements: A finance
manager has to make estimation with regards to capital
requirements of the company. This will depend upon
expected costs and profits and future programmes and
policies of a concern.

Estimations have to be made in an adequate manner

which increases earning capacity of enterprise.

2. Determination of capital composition: Once the

estimation have been made, the capital structure have
to be decided.

This involves short-term and long-term debt equity

analysis. This will depend upon the proportion of equity
capital a company is possessing and additional funds
which have to be raised from outside parties.

3. Choice of sources of funds: For additional funds to be

procured, a company has many choices like-

a. Issue of shares and debentures

b. Loans to be taken from banks and financial
institutions
c. Public deposits to be drawn like in form of bonds.

Choice of factor will depend on relative merits and

demerits of each source and period of financing.

4. Investment of funds: The finance manager has to

decide to allocate funds into profitable ventures so that
there is safety on investment and regular returns is
possible.

5. Disposal of surplus: The net profits decision have to be

made by the finance manager. This can be done in two
ways:
a. Dividend declaration - It includes identifying the
rate of dividends and other benefits like bonus.
b. Retained profits - The volume has to be decided
which will depend upon expansional,
innovational, diversification plans of the company.

6. Management of cash: Finance manager has to make

decisions with regards to cash management.

Cash is required for many purposes like payment of

wages and salaries, payment of electricity and water
bills, payment to creditors, meeting current liabilities,
maintainance of enough stock, purchase of raw
materials, etc.

7. Financial controls: The finance manager has not only to

plan, procure and utilize the funds but he also has to
exercise control over finances.

This can be done through many techniques like ratio

analysis, financial forecasting, cost and profit control,
etc.

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Author(s)

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Reviewed By Management Study Guide
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Home / Library / Finance / Financial Management

/ Financial Planning - Definition, Objectives and
Importance

Financial Planning -
Definition, Objectives and
Importance
Definition of Financial Planning
Financial Planning is the process of estimating the capital
required and determining it’s competition. It is the process of
framing financial policies in relation to procurement,
investment and administration of funds of an enterprise.

Objectives of Financial Planning

Financial Planning has got many objectives to look forward to:

a. Determining capital requirements- This will depend

upon factors like cost of current and fixed assets,
promotional expenses and long- range planning. Capital
requirements have to be looked with both aspects:
short- term and long- term requirements.

b. Determining capital structure- The capital structure is

the composition of capital, i.e., the relative kind and
proportion of capital required in the business. This
includes decisions of debt- equity ratio- both short-term
and long- term.

c. Framing financial policies with regards to cash control,

lending, borrowings, etc.

d. A finance manager ensures that the scarce financial

resources are maximally utilized in the best possible
manner at least cost in order to get maximum returns
on investment.

Importance of Financial Planning

Financial Planning is process of framing objectives, policies,
procedures, programmes and budgets regarding the financial
activities of a concern. This ensures e"ective and adequate
financial and investment policies. The importance can be
outlined as-

1. Adequate funds have to be ensured.

2. Financial Planning helps in ensuring a reasonable

balance between outflow and inflow of funds so that
stability is maintained.

3. Financial Planning ensures that the suppliers of funds

are easily investing in companies which exercise
financial planning.

4. Financial Planning helps in making growth and

expansion programmes which helps in long-run survival
of the company.

5. Financial Planning reduces uncertainties with regards to

changing market trends which can be faced easily
through enough funds.

6. Financial Planning helps in reducing the uncertainties

which can be a hindrance to growth of the company.
This helps in ensuring stability an d profitability in
concern.

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 Authorship/Referencing - About the

Author(s)

The article is Written By “Prachi Juneja” and

Reviewed By Management Study Guide
Content Team. MSG Content Team comprises
experienced Faculty Member, Professionals and
Subject Matter Experts. We are a ISO
2001:2015 Certified Education Provider. To
Know more, click on About Us. The use of this
material is free for learning and education
purpose. Please reference authorship of content
used, including link(s) to
ManagementStudyGuide.com and the content
page url.

Search

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