Finance Management


One needs money to make money. Finance is the life-blood of business and there must be a continuous flow of funds in and out of a business enterprise. Money makes the wheels of business run smoothly. Sound plans, efficient production system and excellent marketing network are all hampered in the absence of an adequate and timely supply of funds. Sound financial management is as important in business as production and marketing. A business firm requires finance to commence its operations, to continue operations and for expansion or growth. Finance is, therefore, an important operative function of business.

A large business firm has to raise funds from several sources and has to utilize those funds in alternative investment opportunities. In order to ensure the most judicious utilization of funds and to provide a reasonable rate of return on the investment, sound financial policies and programs are required. Unwise financing can drive a business into bankruptcy just as easily as a poor product, inept marketing or high production costs. In fact, finance is the bright thread running through all business activity. It influences and limits the activities of marketing, production, purchasing and personnel management. The success of a business is measured largely in financial terms. The efficient organization and administration of the finance function is thus vital to the successful functioning of every business enterprise.



Financial Management is a related aspect of finance function. In the present business administration financial management is an important branch. Nobody will think over about-business activity without finance implication. Financial management includes adoption of general management principles for financial implementation.

Preparing and implementation of some plans can be said as financial management. In other words, collection of funds and their effective utilization for efficient running of and organization is called financial management. Financial management has influence on all activities of an organization. Hence it can be said as an important one. Its main responsibility is to complete the finance function successfully. It also has relations with other business functions. All business decisions also have financial implications. According to Raymond Chambers, Management of finance function is the financial management’.

Aims of Financial Management:

The aims of financial management should be useful to the firm’s proprietors, managers, employees and consumers. For this purpose the only way is maximization of firm’s value.

  • Rise in profits:
  • Reduction in cost:
  • Sources of funds:
  • Reduce risks:
  • Long run value:

The scope of financial management includes three groups. First – relating to finance and cash, second – rising of fund and their administration, third – along with the activities of rising funds, these are part and parcel of total management, Isra Salomon felt that in view of funds utilization third group has wider scope.

It can be said that all activities done by a finance officer are under the purview of financial management. But the activities of these officers change from firm to firm, it become difficult to say the scope of finance. Financial management plays two main roles, one – participating in funds utilization and controlling productivity , two – Identifying the requirements of funds and selecting the sources for those funds.


1).Liquidity, profitability and management are the functions of financial management. Let us know very briefly about them.

  • Liquidity:
  • Liquidity can be ascertained through the three important considerations.

  • Forecasting of cash flow:
  • Cash inflows and outflows should be equalized for the purpose of liquidity.

  • Rising of funds:
  • Finance manager should try to identify the requirements and increase of funds.

  • Managing the flow of internal funds:
  • Liquidity at higher degree can be maintained by keeping accounts in many banks. Then there will be no need to depend on external loans.

2).Profitability

While ascertaining the profitability the following aspects should be taken into consideration:

  • Cost of control:
  • For the purpose of controlling costs, various activities of the firm should be analyzed through proper cost accounting system,

  • Pricing:
  • Pricing policy has great importance in deciding sales level in company’s marketing. Pricing policy should be evolved in such a way that the image of the firm should not be affected.

  • Forecasting of future profits:
  • Often estimated profits should be ascertained and assessed to strengthen the firm and to ascertain the profit levels.

  • Measuring the cost of capital:
  • Each fund source has different cost of capital. As the profit of the firm is directly related to cost of capital, each cost of capital should be measured.

    3).Management:

    It is the duty of the financial manager to keep the sources of the assets in maintaining the business. Asset management plays an important role in financial management. Besides, the financial manager should see that the required sources are available for smooth running of the firm without any interruptions. A business may fail without financial failures. Financial failures also lead to business failure. Because of this peculiar condition the responsibility of financial management increased. It can be divided into the management of long run funds and short run funds.

    Long run management of funds relates to the development and extensive plans. Short run management of funds relates to the total business cycle activities. It is also the responsibility of financial management to co¬ordinate different activities in the business. Thus, for the success of any firm or organization financial management is said to be a must.