Financial management- concerned with raising , allocating , and controlling the firm’s funds.

Finance – defined as the art and science of managing money.

Types of finance

 private finance- includes the individual, firm, business or corporate financial activities.
 Public finance- concerns with revenue and disbursement of government such as central
government, state government.

Scope of financial management

1. Financial management and economics- economic concept like macro and micro
economics are directly applied with the financial management.
2. Financial management and accounting- accounting records includes the
financial information of the business concern.
3. Financial management or mathematics – applied large number of mathematical
and statistical technique.
4. Financial management and production management- operational part of
business concern.
5. Financial management and human resources – related with human resource
management, which provides man power to all the functional areas.
6. Financial management and marketing- produced goods are sold in the market.

Importance of financial management

1. Financial planning – financial management helps to determine the financial
requirement of the business concern.
2. Acquisition of funds- involve the acquisition of required finance to the
business concern.
3. Proper use of funds- proper use and allocation of funds
4. Financial decision- helps to take sound financial decision in the business.
5. Improve profitability – profitability of the concern purely depends on the
effectiveness.
6. Increase the value of the firm- increasing the wealth of the investors and
business.
7. Promoting savings – savings are possible only when the business concern
earns higher profitability and maximizing the wealth.
 Financial decision and risk- return trade – increase in return is coupled by a
corresponding increase in risk.

Objective of financial management

 Profit maximization – aim of any kind of economic activity is earning
profit.
 Wealth-maximization-innovation and improvement in the field of
business.

Drawbacks of profitbmaximiation

1. It is vague- profit is not defined precisely or correctly.

2. It ignores the time value of money- profit maximization does not consider the time
value of money .
3. It ignore risk- does not consider risk of the business concern.

Role of financial managers

1. Investment decision – entail an outflow of resources

2. Financing decision – find way to provide money for the activities of the firm.
3. Dividend policy decision- good financial signal to the market

Types of business organization

 Sole proprietorship – owned by single person
 Partnership- composed of 2 or more persons.
 Corporation- created by the operation of law having the right of succession.

Agency theory
 Stockholders and managers – manager owned small percentage of company’s
stock
 Stockholders and creditors – claims over the asset of the company.