FM Mba Ii Unit 1
FM Mba Ii Unit 1
MANAGEMNT
MODULE -1
INTRODUCTION TO FINANCIAL MANAGEMNT
Financial management is the operational process of a company that wants to acquire and
utilize the funds efficiently which is required for company activities. It is primarily focusing
on the efficient management of funds in the enterprise. According to the layman,
businesses’ financial management is known as corporation finance/business finance as
practiced by businesses. And you should know about the concept of financial management
to become a financial expert.
The nature of financial management relates to its connection with disciplines such as
economy and accounting, among others. Financial management is an essential component
of managing. And the basic concept of financial management is associated with other
disciplines and fields of study such as economy, accounting, manufacturing, marketing,
human resources, and quantitative techniques.
Two Basic Concepts Of Financial Management
The term financial management means obtaining and managing funds. And the primary
objective of financial management is to increase the firm’s value. So, what is the concept of
financial management? There are two basic concepts of financial management, obtaining
funds and utilising these funds.
1. Obtaining Funds
One of the basic concepts of financial management is obtaining funds. As finances for a
company come from various sources, procuring them can pose a challenge for businesses.
These funds have varying risks, costs, and control that the company’s management should
look into while obtaining funds. The fund’s manager should obtain these funds at the lowest
cost, balanced risk, and control factors.
Funds raised through equity shares are expected to be the least risky, as there is no liability in
terms of repayment. But there is one shortcoming of the funds obtained through equity; they
are expensive because dividends that the shareholders expect are way higher than the
interest rates. Existing shareholders’ shares may be diluted if new shares are issued.
2. Utilizing Obtained Funds Effectively
3. Maintenance of Liquidity
4. Proper Mobilization
The agency problem occurs because of the issues with the incentives and the
task to be completed in the discretion. At times the agents can be prompted to
function in a way that is unfavourable to the principal. This happens specifically
if the agents are given with the incentives to act as such.
Role of a Financial Manager
Financial activities of a firm is one of the most important and complex activities of a firm.
Therefore in order to take care of these activities a financial manager performs all the
requisite financial activities.
A financial manger is a person who takes care of all the important financial
functions of an organization. The person in charge should maintain a far sightedness in
order to ensure that the funds are utilized in the most efficient manner.
Following are the main functions of a Financial Manager:
1.Raising of Funds
2.Allocation of Funds
3.Profit Planning
4.Understanding Capital Markets