FINANCIAL MANAGEMENT : AN OVERVIEW
Question : What do you mean by financial management ?
Answer :Meaning of Financial Management :
The primary task of a Chartered Accountant is to deal withfunds, 'Management of Funds' is an important aspect of financialmanagement in a business undertaking or any other institution likehospital, art society, and so on. The term 'Financial Management' hasbeen defined differently by different authors.According to Solomon "Financial Management is concernedwith the efficient use of an important economic resource, namelycapital funds." Phillippatus has given a more elaborate definition of the term, as , "Financial Management, is concerned with the managerialdecisions that results in the acquisition and financing of short andlong term credits for the firm." Thus, it deals with the situations thatrequire selection of specific problem of size and growth of anenterprise. The analysis of these decisions is based on the expectedinflows and outflows of funds and their effect on managerial objectives. The most acceptable definition of financial management is that givenby S.C.Kuchhal as, "Financial management deals with procurement of funds and their effective utilisation in the business." Thus, there are 2basic aspects of financial management :
1) procurement of funds :
As funds can be obtained from different sources thus, theirprocurement is always considered as a complex problem by businessconcerns. These funds procured from different sources have differentcharacteristics in terms of risk, cost and control that a manager mustconsider while procuring funds. The funds should be procured atminimum cost, at a balanced risk and control factors.Funds raised by issue of equity shares are the best from riskpoint of view for the company, as it has no repayment liability excepton winding up of the company, but from cost point of view, it is mostexpensive, as dividend expectations of shareholders are higher thanprevailing interest rates and dividends are appropriation of profits andnot allowed as expense under the income tax act. The issue of newequity shares may dilute the control of the existing shareholders.Debentures are comparatively cheaper since the interest ispaid out of profits before tax. But, they entail a high degree of risksince they have to be repaid as per the terms of agreement; also, theinterest payment has to be made whether or not the company makesprofits.Funds can also be procured from banks and financialinstitutions, they provide funds subject to certain restrictive covenants.