Financial Management Definition:
In words of Solomon, “Financial management aims to effectively use the capital funds which also happens to be a significant economic resource.”
Phillippatus has given a more amplified definition. According to him “Financial Management is concerned with the managerial decisions that results in the acquisition and financing of short and long term credits for the organizations.”
In views of Howard and Upton, “Financial management should be considered as an application of general managerial principles to the area of financial decision-making.” According to Weston and Brigham, “Financial management is province of financial decision-making, harmonizing individual motives and enterprise goals”.
Financial management is the core of entire finance study. The term financial management also has lots of definitions. Out of all the definitions most popular and widely accepted definition of financial management is delivered by S.C. Kuchhal. According to him, “Financial Management deals with procurement of funds and their effective utilization in the business.”
In this competitive era, funds are acquired from several sources. The procurement of these funds has always been reckoned as a stumbling block. The characterization of funds procured from different sources varies in terms of cost, risk, management and control. A smart manager will know that the funds should be procured at minimum cost, at a balanced risk and control factors.
In order to meet the needs of investors, often organizations and firm sign multiple option convertible bonds. For example, funds can be generated from abroad as well. The two prominent sources of capital from abroad are – Foreign Direct Investment (FDI) and Foreign Institutional Investors (FII). Other contributors amongst foreign based investors are American Depository Receipts (ADR’s) and Global Depository Receipts (GDR’s).
Proper analysis of utilization of those procured funds is the job of a financial manger. He is responsible for informing the firm or an individual that whether or not their funds are optimally allocated. To accomplish this task, the financial manager is expected to be knowledgeable, tactful and witty. He should understand the demands and requirement of the individual or the firm and should come up with some strategically rationalized plan so that the latter one can enjoy optimally.
Example of Financial Management:
Finance management is classified based on business activities or company’s accounts or personal account. Financial management example for business or company includes managing telephone cost, hiring a new employee, purchasing of facilities, project budgets, etc. Financial management example for individuals includes managing monthly budgets, expenses, shopping, etc.
Importance of Financial Management:
Financial planning is important for your financial stability and to keep you away from bankruptcy. Here we will see what is the importance of financial management?
1. Investment Opportunities: As a person, if you are good at managing your finance and saving then you get opportunities to explorer investment. Investment opportunities will assist you in creating wealth so that you can enjoy your retirement period. There are various investment opportunities you can explorer like investing in stocks, gold, mutual funds, property, lands, etc. You can study about investing in detail to know the risk and return of investment. Depending upon your risk ability you can then choose the appropriate investment options.
2. Economic Growth and Stability: Proper financial planning will ensure your economic growth. Gradually you will expand your wealth creation which will help you to grow financially. Important thing in someone’s life is financially stability. Only way to ensure your financial stability is through economic growth and only option to ensure the same is through financial management.
3. Improve Standard of Living: Once you have learned and taken good knowledge on financial management, this will not only provide you financial stability and peace of mind but also it will improve your standard of living. Your economic growth will transform into better standard of living.
4. Tax Planning: Your financial planning should also include your tax planning. When failing to plan your taxes appropriately, it will lead you spend more out of your pocket. For example: If you can analyze that current fiscal year you will be spending less on taxes but in next year you are more likely to pay heavy taxes then you should manage your budget and saving accordingly. This will help you towards economic growth else you may run out of cash and may lead in disturbance in your investment decisions.
Think of it that financial management is so important what it will benefit you in many ways. It will provide you financial stability, improve your standard of living, give you peace of mind and keep you financially stress free. It is highly recommended that you should start thinking of financial management when you can see how many benefits you get from it.
- Tutorial Course - Financial Management Basics For Beginners -
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» e-Learning Chapter 3: Objectives of Financial Management
» e-Learning Chapter 4: Nature and Scope of Financial Management
» e-Learning Chapter 5: What is Managerial Accounting? Definition, Role, Job and Objectives
» e-Learning Chapter 6: What is Corporate Finance? Definition, Roles, Principles and Importance
» e-Learning Chapter 7: Investment Valuation and Project Valuation Methods and Techniques
» e-Learning Chapter 8: What is Working Capital Management? Definition, Importance and Objectives
» e-Learning Chapter 9: What is Financial Risk Management? Definition, Methods and Techniques
» e-Learning Chapter 10: Financial Management for Startups
» e-Learning Chapter 11: Financial Management for IT Services