Financial management is broadly concerned with the acquisition and use of funds by a business firm. In other words, FM is planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization. FM scope may be defined in terms of the following questions:
1. How large should the firm be and how fast should it grow?
2. What should be the composition of the firm’s assets?
3. What should be the mix of the firm’s financing?
4. How should the firm analyze, plan, and control its financial affairs?
1. Financial Planning: It is the duty of management to ensure the adequate funds are available to meet the needs of the business. In the short term, funds are required to pay the employers or to invest in stocks. In the middle and long term funds are required to make additions to the productive capacity of the business.
2. Financial Control: Financial control helps the business to ensure that it is meeting its goals. Through financial control the firm decides how much to invest in short term assets and how to raise the required funds.
3. Financial Decision Making: The three primary aspects of financial decision making are investment, financing and dividends. Investment must be financed in some way for which various alternatives are available. A financing decision is to retain the profits earned by the business or should it should be distributed among the shareholders via dividends.