Understanding Finance and Financial Management: Definitions and Objectives, Slides of Financial Management

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• Financial ManagementFinancial Management

• An IntroductionAn Introduction

Business concern needs finance to meetBusiness concern needs finance to meet their requirements .Any kind of business their requirements .Any kind of business activity depends on the finance. Whether activity depends on the finance. Whether the business concerns are big or small, they the business concerns are big or small, they need finance to fulfill their business need finance to fulfill their business activities. activities.

FINANCE

MEANING OF FINANCEMEANING OF FINANCE

• Finance may be defined as the art and scienceFinance may be defined as the art and science of managing money. of managing money.
• Finance is also referred to as the provision ofFinance is also referred to as the provision of money at the time when it is needed. money at the time when it is needed.
• Finance function is the procurement of fundsFinance function is the procurement of funds and and theirtheir effectiveeffective utilizationutilization inin businessbusiness concerns. concerns.

DEFINITION OF FINANCEDEFINITION OF FINANCE

• According to Khan and Jain, “Finance is the art andAccording to Khan and Jain, “Finance is the art and science of managing money”. science of managing money”.
• According to Oxford dictionary, the word ‘finance’According to Oxford dictionary, the word ‘finance’ connotes ‘management of money’. connotes ‘management of money’.
• Webster’s Ninth New Collegiate Dictionary definesWebster’s Ninth New Collegiate Dictionary defines finance as “the Science on study of the management finance as “the Science on study of the management of funds’ and the management of fund as the system of funds’ and the management of fund as the system that includes the circulation of money, the granting that includes the circulation of money, the granting of of credit,credit, thethe makingmaking ofof investments,investments, andand thethe provision of banking facilities. provision of banking facilities.

Corporate finance is concerned with budgeting,Corporate finance is concerned with budgeting, financial forecasting, cash management, credit financial forecasting, cash management, credit administration, investment analysis and fund administration, investment analysis and fund procurement of the business concern and the procurement of the business concern and the business concern needs to adopt modern business concern needs to adopt modern technology and application suitable to the global technology and application suitable to the global environment. environment.

FINANCIAL MANAGEMENTFINANCIAL MANAGEMENT

Financial management is one the functional Financial management is one the functional area of management. It refer to that part of area of management. It refer to that part of the management activity which is the management activity which is concerned with the planning and controlling concerned with the planning and controlling of firms financial resources. of firms financial resources.

 Joshep and Massie : Financial managementJoshep and Massie : Financial management “is the operational activity of a business that “is the operational activity of a business that is responsible for obtaining and effectively is responsible for obtaining and effectively utilizing the funds necessary for efficient utilizing the funds necessary for efficient operations. operations.  Thus, Financial Management is mainlyThus, Financial Management is mainly concerned with the effective funds concerned with the effective funds management in the business. management in the business.  In simple words, Financial Management asIn simple words, Financial Management as practiced by business firms can be called as practiced by business firms can be called as Corporation Finance or Business Finance. Corporation Finance or Business Finance.

 FinancialFinancial managementmanagement isis oneone ofof thethe important important partsparts ofof overalloverall management,management, which which isis directlydirectly relatedrelated withwith variousvarious functional functional departmentsdepartments likelike personnel,personnel, marketing marketing andand production.production. FinancialFinancial management management coverscovers widewide areaarea withwith multidimensional approaches. multidimensional approaches.

Financial Management and EconomicsFinancial Management and Economics Economic concepts like micro and Economic concepts like micro and macroeconomics are directly applied with macroeconomics are directly applied with the financial management approaches. the financial management approaches. Investment decisions are based on micro Investment decisions are based on micro and macro factors. Financial management and macro factors. Financial management also uses the economic concepts like money also uses the economic concepts like money value ,discount factor, economic order value ,discount factor, economic order quantity etc. quantity etc.

Financial Management and AccountingFinancial Management and Accounting Accounting records includes the financial Accounting records includes the financial information of the business concern. Hence, information of the business concern. Hence, we can easily understand the relationship we can easily understand the relationship between the financial management and between the financial management and accounting. In the olden periods, both accounting. In the olden periods, both financial management and accounting were financial management and accounting were treated as same but now a day’s financial treated as same but now a day’s financial management and accounting discipline are management and accounting discipline are separate but interrelated. separate but interrelated.

Financial Management and MarketingFinancial Management and Marketing Produced goods can be sold in the market Produced goods can be sold in the market with innovative and modern approaches. with innovative and modern approaches. For this, the marketing department needs For this, the marketing department needs finance. The finance manager or finance finance. The finance manager or finance department is responsible to allocate the department is responsible to allocate the adequate finance to the marketing adequate finance to the marketing department. Hence, marketing and financial department. Hence, marketing and financial management are interrelated and depends management are interrelated and depends on each other. on each other.

Financial Management and Human ResourceFinancial Management and Human Resource Financial management is also related with human Financial management is also related with human resource department, which provides manpower to resource department, which provides manpower to all the functional areas of organization. Finance all the functional areas of organization. Finance manager should carefully evaluate the requirement manager should carefully evaluate the requirement of manpower to each department and allocate the of manpower to each department and allocate the finance to the human resource department as wages, finance to the human resource department as wages, salary, remuneration, commission, bonus, pension salary, remuneration, commission, bonus, pension and other monetary benefits to the human resource and other monetary benefits to the human resource department. Hence, financial management is department. Hence, financial management is directly related with human resource management. directly related with human resource management.

Traditional View:Traditional View:

 Financial management is primarily concernedFinancial management is primarily concerned with acquisition, financing and management of with acquisition, financing and management of assets of business concern in order to maximize assets of business concern in order to maximize the wealth of the firm for its owners. the wealth of the firm for its owners.  The basic responsibility of the Finance managerThe basic responsibility of the Finance manager is to acquire funds needed by the firm and is to acquire funds needed by the firm and investing those funds in profitable ventures that investing those funds in profitable ventures that will maximize firm’s wealth, as well as, yielding will maximize firm’s wealth, as well as, yielding returns to the business concern. returns to the business concern.

 The success or failure of any firm is mainly linkedThe success or failure of any firm is mainly linked with the quality of financial decisions. The focus of with the quality of financial decisions. The focus of Financial management is on efficient and judicious Financial management is on efficient and judicious use of resources to attain the desired objective of the use of resources to attain the desired objective of the firm. firm.  The basic objectives of Financial managementThe basic objectives of Financial management centers around centers around (a) the procurement funds from various sources like (a) the procurement funds from various sources like equity share capital, preference share capital, equity share capital, preference share capital, debentures, term loans, working capital finance, and debentures, term loans, working capital finance, and (b) effective utilization of funds to maximize the (b) effective utilization of funds to maximize the profitability of the firm and the wealth of its owners. profitability of the firm and the wealth of its owners.