WHAT IS FINANCIAL MANAGEMENT

As the name suggest financial management means managing finance or rather funds, we all know that funds are raised at some cost like loan from bank or other financial institution etc.

It is our responsibility to manage that fund so that it can be used wisely and we shall able to fulfill our aims using the funds. An improper management of funds can highly increase cost or can even land the firm into the situation of bankruptcy.

eg- If a firm raises a loan of $100000 and put it into an inverstment without having proper knowledge about the returns. Then if suppose investment failed to give enough returns to cover loan and interest amount, it will be a huge loss to firm.

Here, financial management comes into scene which aims to reduce the cost of funds procured, keeps the risk minimum and controllable, tries to achieve maximum out of funds raised.

Now, let’s discuss how financial management affect business health.

We are aware about financial statements such as balance sheet, profit and loss account that reflects a firms financial health or position. Financial management somehow affects these statements or the items in these statements.

1) It affects size of fixed assets, a decision to invest in assets.

2) Financial mgt decides about how much to raise in long run from debt or equity.

therefore, financial mgt highly affects business health and also it influences future statements as those are dependent on past info. While a good financial management mobilises resources well and takes care of these problems.

OBJECTIVES:- 

a) The first most aim of financial mgt is to increase the shareholder’s wealth also known as wealth maximisation concept.

b) If we get large benefit from a decision, that will exceed cost involved and increase equity shares price then that decision is good and financial mgt aims to take such decisions. A poor decision will be that one that leads to decrease in market price of company’s share.

c) It always tries to pull out maximum from any investment that will exceed the cost of investment and add some value. If a machine is purchased then it will ensure that max work shall be taken out to cover machine cost.

So, we can say that financial management ultimately aims to maximize market price of a firm’s share and increase its owners wealth.

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