What is Financial Management?Financial management is the planning of the requirement of capital investment with the objective of earning higher return incurring the least cost and efficient management of the financial management of the financial affairs of any business enterprise.According to the J.J Hampton"Financial management is an applied field of business administration."Financial management may be defined as, "Financial management is the integral part of general management engaged in raising of finance, allocation and utilization of finances or funds and other managerial function for the overall growth of the enterprise."Financial management has some basic features. Financial management is an applied form of general management. It concerned with the procurement and conversation of capital funds to meet the financial needs of the business enterprise and to achieve the overall objectives of the firm

Ist To Get Funds from Different Sources:-

This decision is very helpful for development ofcompany. You know that if you start even a small business, you need fund for paying capital and revenue expenditures. But you have to give its cost. You have also to take the risk of its repayment; it may possible that at the time of repayment, you have no money in your pocket. It is therisk of solvency. You also have to see who will control your business after taking fund. We explain our views to make understand to you.

If you choose share capital as the source of funds:

Suppose, you have issued new shares and get fund as share capital, at that time, we can analyze its cost, risk and control with following ways:-(a) CostCost of acquiring share capital is high than acquiring debt because its cost is dividend and dividend is not deducted out of profit as indirect expenses. It is division of net profit after tax. If we get debt, we pay interest before tax, it means we have to pay tax high, if we get share capital and pay dividend. Thus cost of this source of funds is high.(b) RiskRisk means probability of loss in future. But, you have chosen this source, you will find no risk because we do not repay to shareholders. We only repay balance amount at the time of winding up of company.(c) ControlIf company issues new share to new shareholders instead of existing shareholders for getting funds from new shareholders, it will reduce the control of existing shareholders. If you choose bond or debenture or take loan:At that time, companys cost will reduce but risk of repayment will increase. If company has no liquidity at the time of repayment company will be liquidated.

There are also many other sources but these sources have also some strength point and weak point. Before choosing best source deep analysis is needed.

Functions of Financial ManagementFinancial management performs different function for the effective management of funds of any organization. Financial management is concerned with the supervision of the capital invested in the business enterprise,allocation of finance to resources and overall increase in the value of business.Jim Mc Menaminproposes the following interrelated activities of financial management-Financial analysis, financial decision making, financial planning, and financial control. The function of financial management include the following-

Now we will discuss the finance related functions of financial management. Basically these decisions are divided under three broad categories. These are financial decision, investment decision and dividend decisions. We will discuss them one by one.Financial Decision-Financing decision of an enterprise includes decision for short term capital and long term capital requirement. Financing decision include decision upon the needs and source of new outside financing and caring on negotiations for new outside financing. Financing means procurement of finance at most convenient and economic rates.Investment Decisions- Funds acquired from different sources are to be invested in profitable projects so that maximum profit can be earned and the value of the wealth becomes maximum. Long term funds are invested for the acquisition of fixed assets and current assets also. The investment of funds in different projects should be made carefully so that the funds can be utilized in the maximum possible ways. Capital budgeting techniques is used or making investment decisions. Investment decision considers the management of current assets such as cash, marketable securities, etc. Capital budgeting which includes identification, selection, implementation of capital projects, etc. and management of mergers, reorganization, disinvestment, etc.Dividend Decisions-The financial managers takes dividend decisions. For taking decision in respect of dividend, the factor to be consider include- availability of cash, tax position of the shareholders, trend of earnings, requirements of funds for the future, etc. Dividend decision considers the allocation of net profit.Dividend decision gives emphasis on the checking on financial performance. The financial manager takes initiatives to take proper dividend decisions as to the amount of dividend to be paid and the time of payment of dividend. He tries to set balance between dividend retention and distribution. Dividend decisions are taken considering the overall liquidity and profitability of the enterprise. Dividend decisions are taken taking into account the disposition of profits between dividend and retained earnings.