Financial Management An Overview
Financial Management is concerned with planning, directing, monitoring, organizing and controlling monetary resources of an organization. Financial Management simply deals with management of money matters. Management of funds is a critical aspect of financial management. The process of financial management takes place: at the individual as well as organization levels. Our area of dealing is from the view- point of organization. ‘Financial Management’ is a combination of two words, ‘Finance’ and ‘Management’. Finance is the lifeblood of any business enterprise. No business activity can be imagined, without finance. It has been rightly said that business needs money to make more money. However, money begets money, when it is properly managed. Efficient management of business is closely linked with efficient management of its finances. Financial Management is that specialized function of general management, which is related to the procurement of finance and its effective utilization for the achievement of common goal of the organization.
1.2 MEANING OF FINANCE
Finance is defined as the provision of money at the time, it is required. Finance is the art and science of managing money. There is no human being, without blood. Similarly, there is no organization that does not require finance, irrespective of the activity, it is engaged in. The way blood is needed for a person to live, so is the requirement of finance to any firm for its survival and growth. Without adequate finance, no organization can possibly achieve its objectives.
Financial Management and Management Accounting
Ray G. Jones and Dean Dudley observe that the word ‘finance’ comes directly from the Latin word ‘finis’. As a management function, finance has special meaning. Finance function may be defined as the procurement of funds and their effective utilization. Howard and Uption (1952) defined finance as “the administrative area or set of administrative function in an organization which have to do with the management of flow of cash so that the organization will have the means to carry out its objectives as satisfactory as possible and, at the same time, meet its obligations as they become due.” Distinction between Money and Finance: Money is expressed in currency. Money can be any country’s currency, which is in the hands of any person or organization. Finance is also money, any country’s currency, which is owned by any person or organization, but lent to others, used to buy an asset or make investment opportunities. The distinction between money and finance can be explained in another way. If you hold currency, it is money, while you lend it over to others for buying or investing in investment opportunities, it becomes finance.
It is curious to find that the same currency changes its role from ‘Money’ to ‘Finance’, with the change of hands. Let us illustrate. Money raised by a bank, in the form of deposits from public, becomes finance when it is lent to borrowers. If it is granted to buy/ construct a home, it becomes a home loan. It is a vehicle loan, when the amount is lent for buying a car. The amount becomes ‘Project Finance’, if lent to entrepreneur to start or expand a project. If you hold money, it does not give any return. You part money in the form of finance, either by way of loan or investment, it starts getting return. Is it not interesting?
1.3 FUNCTIONS AND IMPORTANCE OF FINANCE
In general, the term “Finance” is understood as the provision of funds, as and when needed. Finance is the essential requirement—sine qua non—of every organization. Required Everywhere: All activities, be it production, marketing, human resources development, purchases and even research and development, depend on the adequate and timely availability of finance both for commencement and their smooth continuation to completion. Blood is needed for every human being. Similarly, there is...
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