Introduction to Financial Management

What is Management?

Management is the process of planning, organizing, staffing, leading and controlling the resources (include human, physical, financial, and information) of an organization to achieve its goals efficiently and effectively.

What is Financial Management?

Finance is the branch of management. It is an art and science of managing money. The proper management of money is called Finance. Finance refers to funds needed by individuals, businesses and government. Finance studies money and its management.

Financial management is the process of planning, organizing, directing and controlling the financial activities in an organization. 

Importance of Financial Management

Financial management is importance for various reasons of the company they include:

• It provides guidelines of financial planning

• It helps to identify the sources of funds

• It helps to allocate the resources properly

• It increases the efficiency

• It reduces the costs

• It provides information though financial reporting ,etc.
  

Types of Finance

Basically, the finance broadly categorized into three types presented as bellows:

Fig: Types of Finance

1. Personal Finance: If the individual manages the money for him/her then this is called the personal finance. For example: budgeting, income, expenses, saving, investment planning, insurance planning, tax planning, retirement planning etc.
   

2. Public Finance: If the government organization manages money the money then is called the public finance. For example: finance ministries, taxes, customs agencies,  government agencies, central banks, public pension funds etc.
   

3. Corporate Finance: If the business organization manages the money then is called corporate finance. For example: Corporate IPO Issuing, Bond Issuing, Merger & Acquisition, etc.
   

This blog provides you various information and knowledge about corporate finance only. So we'll discuss on corporate finance. 

Areas or Roles of Financial Management

The finance management has three areas or roles described as bellows: 

Table: Roles of Finance

Note: The financing decision include capital structure management while investing decision include working capital management and capital budgeting decision. The distributing decision include decision regarding dividend policy.  

Goals / Objectives of Finance

In the broadest sense, the finance has mainly two types of objectives:

1. Profit Maximization: It refers to maximize the net income of the firm. The objective is associated with company’s welfare. When revenue exceeds expenses the profit will generate. This objective fulfills the dividend need of the shareholders. 
   

2. Wealth Maximization: It refers to maximize the price of the firm's common stock or market price per share. The objective is associated with shareholders’ welfare.This objective fulfills the capital gain need of the shareholders.
   

Conclusion

Finance is the branch of management. It is an art and science of managing money. It refers to funds needed by individuals, businesses and government. Finance studies money and its management. Basically, the finance broadly categorized into three types includes Person, Public and Corporate. The finance has three areas or roles Financing Decision, Investment Decision and Distributing Decision. In the broadest sense, the finance has mainly two types of objectives; profit maximization and wealth maximization.

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