Page 8 - DMGT409Basic Financial Management
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Rupesh Roshan Singh, Lovely Professional University            Unit 1: An Overview of Financial Management




                  Unit 1: An Overview of Financial Management                                   Notes


             CONTENTS

             Objectives
             Introduction
             1.1   Meaning and Definition of Financial Management

             1.2   Objectives of Financial Management
             1.3   Scope of Financial Management

             1.4  Finance Functions
             1.5   Risk and Return Trade off
             1.6  Summary
             1.7  Keywords

             1.8  Self Assessment
             1.9  Review Questions
             1.10 Further Readings

          Objectives

          After studying this unit, you will be able to:

               Explain meaning of fi nancial management
               Discuss objectives and scope of fi nancial management

               Describe Finance functions like investment, financing, liquidity and dividend decisions

               Define risk and return trade off
          Introduction

          Finance is one of the basic foundations of all kinds of economic activities; it is the master key
          which provides access to all the sources for being employed in manufacturing and merchandising
          activities. However, it is also true that money begets more money, only when it is properly
          managed. Hence, effi cient management of fi nances is very important. In short, we can say that
          “Finance is the backbone of every business”.

          1.1 Meaning and Definition of Financial Management


          According to  Van Horne and Wachowicz, “Financial Management is concerned with the


          acquisition,  financing and management of assets with some overall goal in mind.” Financial

          manager has to forecast expected events in business and note their financial implications. First,

          anticipating  financial needs means estimation of funds required for investment in  fi xed  and
          current assets or long-term and short-term assets. Second, acquiring fi nancial resources–once

          the required amount of capital is anticipated, the next task is acquiring financial resources i.e.,

          where and how to obtain the funds to finance the anticipated financial needs and the last one is,

          allocating funds in business – means allocation of available funds among the best plans of assets,
          which are able to maximize shareholders’ wealth. Thus, the decisions of fi nancial management

          can be divided into three viz., investment, financing and dividend decision.
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