Jahan University

Faculty of Management Sciences

Department of BBA

Subject: Financial Management

Lecture# 1
Lecturer: Mr. Hayatullah Momand (MS- Finance)

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 Objectives
At the end of this lecture students will be able to know:
1. Concept of Financial Management

2. Modern Approaches to Financial Management.

3. Modern Concept of Financial Management.

4. Objectives of Financial Management

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 Outline
I. Concept of Financial Management

II. Modern Approaches to Financial Management.

III. Modern Approaches to Financial Management.

IV. Objectives of Financial Management

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 Concept and Definitions of Financial Management
Financial management is the management of flow of funds and it deals with the financial decision
making. It encompasses the procurement of funds in the most economic and prudent manner and
employment of these funds in the most optimum way to maximize the return for the owner.

To understand the meaning of financial management, let us observe the following definitions:

1. Financial management is that area of General Management which is concerned with the
timely procurement of adequate finance from various sources and its utmost effective utilization
for the attainment of organizational objectives.

2. Financial management may be defined as planning, organizing, directing and controlling of financial
activities in an organization.

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 Concept and Definitions of Financial Management
Financial management is basically the application of general management principles to the areas
of financial decision making (Such as investment, financing, dividend & working capital) with
a view to maximize the wealth of the company i.e. shareholders. Thus, financial
management answers the following basic questions:
1. Where to invest? i.e. Investment Decisions (I)
2. From where to raise funds? i.e. Financing Decisions (F)
3. How much earnings to be retained and how much to be distributed? i.e. Dividend Decision
(D)
4. How to manage working capital? i.e. Working Capital Management Decisions (W)
5. Hence, wealth of company= f (I, F, D, W)

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 Traditional Approaches to Financial Management
The traditional concept of financial management can be summarized as mentioned below:

1. Finance function was mainly concerned with raising funds for various requirements like
diversification, expansion and so on. I t was not considered to be regular part of managerial
functions.

2. Attention was given to the long term funds only. The concept and day-today management of
working capital was not considered.

3. Sources used for raising funds were mainly equity shares, debentures and preference shares.
The knowledge of legal framework necessary for raising funds though these sources were
considered essential.

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 Modern Approaches to Financial Management
Due to increasing competition and growth in business as well as occurrences of trade cycles,
the scope of the finance function expanded. It was no longer a fund raising activity only.

A finance manager became a professional manager and had to seek the answers to the
following questions:
1. What is the projection of the requirements of funds for the organization? How this amount should
be raised.

2. How to utilize the funds in an optimum manner in order to maximize the returns of the
shareholders?

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 Objectives of Financial Management
The objectives of financial management may be:
1. To maximize profit

2. To maximize earnings per share (EPS)

3. To minimize cost

4. To maximize market share

5. To maximize the current value of the company’s stock

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 Conclusion
Definition of Financial Management

Approaches to Financial Management

Objectives of Financial Management

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 References
1. Hand book of Financial Management

2. Fundamental of financial management by Rustagi

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