Unit 1 Introduction to Financial Management

1. Define term finance. Discuss the roles or responsibility of a modern financial

manager.
Ans:Definition of Finance
If we trace the origin of finance, there is evidence to prove that it is as old as human
life on earth. The word finance was originally a French word. In the 18 th century, it
was adopted by English speaking communities to mean “the management of
money”. Since then it was found a permanent place in the English dictionary. Today,
finance is not merely a word else has emerged into an academic discipline of greater
significance. Finance is now organized as a branch of Economics.
In general sense, “Finance is the management of money and other valuables which
can be easily converted into cash. “According to Experts, Finance is a simple task of
providing the necessary funds(money) required by the business of entities like
companies, firms, individuals and others on the terms that are most favourable to
achieve their economic objectives.” According to Entrepreneurs, “Finance is
concerned with cash. It is so, since, every business transactions involves cash directly
or indirectly.” According to academicians, “Finance is the procurement (to get,
obtain ) of fund and effective (properly planned) utilization of funds. It also deals
with profit that adequately compensate for the cost and risks borne by the
business.”
The term finance should be understood in the perspectives of finance as a resource
and as a discipline. As a response it is related with finance assets and as a discipline.
As a response it is related with finance assets and as a discipline it describes the
management of funds in the organization in effective way. So it deals with the
collection and allocations of resources in an organization to achieve financial goal.
Roles/Responsibilities of a Modern Financial Manager
Financial manager is a person who is responsible in a significant way to carry out the
finance functions. He must have a clear understanding and strong grasp. Of the
nature and scope of finance functions. Generally, the job or responsibility of financial
manager is raising of funds and making allocation of funds. But his duties and
responsibility can be explained as below:
1.forecasting and planning: Financial manager is the component of top-level
management. So he should make plans and policies. While making plans and
forecasting for future, different kinds of interactions and joint efforts are essential.
2.Major investment and financing decisions: A financial manager should form a
capital structure to invest in fixed or long-term assets. For this purpose, capital
mixing, amount of current and fixed assets should also be determined. For this
purpose internal financing should also be considered.
3.Co-ordination and control: The financial managers must interact with executives
and there should be effective coordination and control among departments, sections
and units to achieve a common goal. So financial manager must play an active role to
bring this co-ordination and control over the activities.
4.Interactions with capital markets: He must deal with the money and capital and
capital market. To collect adequate capital, interactions with money and capital
markets is necessary. It helps in purchase and sale of securities, raising of funds,
repayment of funds, etc to the financial managers.
 Q 2. Give the meaning of Financial Management. Discuss the role or importance of
financial management in the success of modern organization.
Ans: Meaning of Financial Management
The planning, directing, monitoring, organization and controlling of the monetary
resources of an organization. Financial Management can be defined as: The
management of the finance of business/ organization to achieve financial
objectives.
Taking a commercial business as the most common organizational structure, the key
objective of financial management would be to:
Create wealth of business
Generate cash, and
Provide an adequate return on investment: bearing in mind the risks that the
business is taking and the resources invested
There are three key elements to the process of financial management:
(1) Financial Planning: Management need to ensure that enough funding is available at
the right time to meet the needs of the business. In the short, term, funding may be
needed to invest in equipment and stocks, pay employees and fund sales made on
credit. In medium and long term, funding may be required for significant additions to
the productive capacity of the business or to make acquisitions.
(2) Financial Control: Financial control is a critically important activity to help the
business ensure that the business is meeting its objectives. Financial control address
questions such as:

Are assets being used efficiently?

Are the business assets secure?
Do management act in the best interest of shareholders and in accordance with
business rules?
(3) Financial Decision-making: The key aspects