Explain the concept and objective of Financial Management.

Financial Management is concerned with efficient acquisition and allocation of funds. In simple words, it refers to the efficient acquisition of finance, efficient utilisation of finance, and efficient distribution and disposal of surplus for smooth working of a business organisation.

Objectives of financial management are as follows:

(i) Profit Maximisation: A finance manager should procure funds at a reasonable cost and invest them in the most profitable channels, ensuring safety and effective utilisation of funds. This in turn will maximise the profits of the business organisation.

(ii) Wealth Maximisation: A company’s funds belong to shareholders and the manner in which they are invested and the return earned by them determines their market value or price. Market price of shares increases if the benefits from a financial decision exceed the cost involved.

(iii) Maintenance of Liquidity: There is always a need to keep adequate cash to pay suppliers and creditors and to meet day-to-day needs of the concern. Liquidity of assets is linked with inflow and outflow of funds. So, the sources of cash and its application should be properly planned to keep a proper balance between inflows and outflows.

Leave a Comment

Your email address will not be published. Required fields are marked *