DEFINITION OF FINANCIAL MANAGEMENT
Financial management is an integral part of overall management. It is concerned with the duties of the financial managers in the business firm. The term financial management has been defined by Solomon, “It is concerned with the efficient use of an important economic resource namely, capital funds”.
The most popular and acceptable definition of financial management as given by different authors
S.C. Kuchal is that “Financial Management deals with procurement of funds and their effective utilization in the business”.
Howard and Upton : Financial management “as an application of general managerial principles to the area of financial decision-making.
Weston and Brigham : Financial management “is an area of financial decision-making, harmonizing individual motives and enterprise goals”.
Joshep and Massie : Financial management “is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations.
Thus, Financial Management is mainly concerned with the effective funds management in the business. In simple words, Financial Management as practiced by business firms can be called as Corporation Finance or Business Finance.
SCOPE OF FINANCIAL MANAGEMENT
Financial management is one of the important parts of overall management, which is directly related with various functional departments like personnel, marketing and production. Financial management covers wide area with multidimensional approaches.
The following are the important scope of financial management.
1. Financial Management and Economics
Economic concepts like micro and macroeconomics are directly applied with the financial management approaches. Investment decisions, micro and macro environmental factors are closely associated with the functions of financial manager.
Financial management also uses the economic equations like money value discount factor, economic order quantity etc. Financial economics is one of the emerging area, which provides immense opportunities to finance, and economical areas.
2. Financial Management and Accounting
Accounting records includes the financial information of the business concern. Hence, we can easily understand the relationship between the financial management and accounting.
In the olden periods, both financial management and accounting are treated as a same discipline and then it has been merged as Management Accounting because this part is very much helpful to finance manager to take decisions.
But nowaday’s financial management and accounting discipline are separate and interrelated.
3. Financial Management or Mathematics
Modern approaches of the financial management applied large number of mathematical and statistical tools and techniques. They are also called as econometrics.
Economic order quantity, discount factor, time value of money, present value of money, cost of capital, capital structure theories, dividend theories, ratio analysis and working capital analysis are used as mathematical and statistical tools and techniques in the field of financial management.
4. Financial Management and Production Management
Production management is the operational part of the business concern, which helps to multiple the money into profit. Profit of the concern depends upon the production performance.
Production performance needs finance, because production department requires raw material, machinery, wages, operating expenses etc.
These expenditures are decided and estimated by the financial department and the finance manager allocates the appropriate finance to production department.
The financial manager must be aware of the operational process and finance required for each process of production activities.
5. Financial Management and Marketing
Produced goods are sold in the market with innovative and modern approaches. For this, the marketing department needs finance to meet their requirements.
The financial manager or finance department is responsible to allocate the adequate finance to the marketing department. Hence, marketing and financial management are interrelated and depends on each other.
6. Financial Management and Human Resource
Financial management is also related with human resource department, which provides manpower to all the functional areas of the management.
Financial manager should carefully evaluate the requirement of manpower to each department and allocate the finance to the human resource department as wages, salary, remuneration, commission, bonus, pension and other monetary benefits to the human resource department.
Hence, financial management is directly related with human resource management.