![]() ![]() ![]() ![]() Long-term investment decisions or Capital Budgeting mean committing funds for a long period of time like fixed assets.Investment Decisions: Managers need to decide on the amount of investment available out of the existing finance, on a long-term and short-term basis. In organizations, managers in an effort to minimize the costs of procuring finance and using it in the most profitable manner, take the following decisions: Learn more about Supply Chain here in detail. You can understand the nature of financial management by studying the nature of investment, financing, and dividend decisions. The scope of financial management is explained in the diagram below: It is important that financial decisions take care of the shareholders‘ interests.įurther, they are upheld by the maximization of the wealth of the shareholders, which depends on the increase in net worth, capital invested in the business, and plowed-back profits for the growth and prosperity of the organization. The introduction to financial management also requires you to understand the scope of financial management. However, the real problem is the efficient utilization of the capital through effective financial planning and control.įurther, the business must ensure that it deals with tasks like ensuring the availability of funds, allocating them, managing them, investing them, controlling costs, forecasting financial requirements, planning profits and estimating returns on investment, assessing working capital, etc. In a developed market, most businesses can raise capital easily. Further, it must also ensure that the profits adequately compensate the costs and risks borne by the business. For example, in the case of a manufacturing company, financial management must ensure that funds are available for installing the production plant and machinery. The third and more widely accepted point of view is that financial management includes the procurement of funds and their effective utilization.Since all business transactions involve cash, directly or indirectly, finance is concerned with everything done by the business. Another set of experts believe that finance is all about cash.It also takes care of the legal and accounting relationship between an enterprise and its source of funds. Therefore, this approach concerns primarily with the procurement of funds which may include instruments, institutions, and practices to raise funds. Some experts believe that financial management is all about providing funds needed by a business on terms that are most favorable, keeping its objectives in mind.There are many theories around financial management: Any organization needs finances to obtain physical resources, carry out the production activities and other business operations, pay compensation to the suppliers, etc. Nature, Significance, and Scope of Financial Managementįinancial management is an organic function of any business. “Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations.”- Massie Browse more Topics under Business Functions “Financial management is that area of business management devoted to a judicious use of capital and a careful selection of the source of capital in order to enable a spending unit to move in the direction of reaching the goals.” – J.F. “Financial management is the activity concerned with planning, raising, controlling and administering of funds used in the business.” – Guthman and Dougal Deals with the planning, organizing, and controlling of financial activities like the procurement and utilization of funds.Ensures sufficient availability of funds. ![]() Endeavors to reduce the cost of finance.For any business, it is important that the finance it procures is invested in a manner that the returns from the investment are higher than the cost of finance. Let’s define financial management as the first part of the introduction to financial management. ![]()
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