INSTITUTE OF MANAGEMENT STUDIES

PESHAWAR UNIVERSITY

Name: Muhammad Naeem

Section: (C and D)

Roll No: 50

Semester: 6TH

Session: 2018-2022

Exam: Mid Term

Subject Teacher: Sir Minhaj

Paper: Financial Management

Repeater

Q: 1 Explain importance of the Financial Management in the field of Economics?

Answer:

Financial management:

May be defined as the area or function in an organization which is concerned with profitability,
expenses, cash and credit, so that the "organization may have the means to carry out its
objective as satisfactorily as possible.

OR

Financial Management is concerned with the managerial decisions that results in the
acquisition and financing of short and long term credits for the organizations.”

Basic Concept of Financial Management:

In simple concept financial management means, if you save me today – I will save you
tomorrow. 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.
Financial Management Example:

You are planning to take a business loan to purchase a new space for your business office. –
Here it is advisable to take a real estate advisor and you need to check whether the valuation
after 20 years or more will be higher than renting it or not. Also you need to consult financial
department whether investing 20% of funds in down payment and taking 80% business loan
will give good returns on investment or not. Many times there are cases where, renting can be
more economical than purchasing, regardless of whether you’re leasing a property, software or
renting a vehicle.

Objectives of Financial Management:

The financial management is generally concerned with procurement, allocation and control of
financial resources of a concern. The objectives can be:

 To ensure regular and adequate supply of funds to the concern.

 To ensure adequate returns to the shareholders which will depend upon the earning
capacity, market price of the share, expectations of the shareholders
 To ensure optimum funds utilization. Once the funds are procured, they should be utilized
in maximum possible way at least cost.

Functions of Financial Management:

Financial controls: The finance manager has not only to plan, procure and utilize the funds but
he also has to exercise control over finances. This can be done through many techniques like
ratio analysis, financial forecasting, cost and profit control, etc.

Investment of funds: The finance manager has to decide to allocate funds into profitable
ventures so that there is safety on investment and regular returns is possible

Choice of sources of funds: For additional funds to be procured, a company has many choices
like:
 Issue of shares and debentures
 Loans to be taken from banks and financial institutions
 Public deposits to be drawn like in form of bonds.

Importance of Financial management in the field of economics:

Financial management provides pathways to attain goals and objectives in an organization. The
main duty of a financial manager is to measure organizational efficiency through proper
allocation, acquisition and management.
The importance of financial management in the field of economics is listed below:

 It provides guidance in financial planning.

 It assists in acquiring funds from different sources.
 It helps in investing an appropriate amount of funds.
 It increases organizational efficiency.
 It reduces delay production.
 It cut down financial costs.
 It reduces cost of fund.
 It ensures proper use of fund.
 It helps business firm to take financial decisions.
 It prepares guideline for earning maximum profits with minimum cost.
 It increases shareholders’ wealth.
 It can control the financial aspects of the business.
 It provides information through financial reporting.
 It makes the employees aware of saving funds.