Financial Management: Meaning and Definition

Financial Management: Meaning and Definition

Finance is the word used to describe the money resources available to individuals, business firms, governments, and the management of these money resources. Virtually all individuals and organizations earn or raise money and spend or invest money.

Meaning of Finance

Finance is the process of raising funds or capital for any expenditure. Finance can be defined as the art and science of managing money. Finance is related to all individuals and organizations earning or raising money and spending or investing money.

Finance involves the process, institutions, markets, and instruments in transferring money among individuals, businesses, and governments.

Finance is the activity of the planning, acquisition, management, and controlling of the firm’s financial resources.

Finance is the process of providing funds for economic activities. Finance consists of providing and utilizing the money, capital rights, credit, and funds employed in a firm’s operation.

Meaning of Finance

Definition of Finance

  1. Finance is the art and science of managing money and affects the lives of every person and every organization. – L. J. Gitman
  2. Finance can be defined as the management of the flow of money through an organization, whether it be a corporation, school, bank, or government agency. – Hampton
  3. Finance is the money resources available to governments, firms, or individuals and the management of these monies. – George E. Pinches
  4. Finance includes the subareas of financial management, investments, and money and capital markets. – C. P. Jones
  5. Finance is the study of markets and instruments that deal with cash flows over time. – Ross, Westerfield & Jaffe
  6. Finance is a body of facts, principles, and theories dealing with the raising and using of money by individuals, businesses, and the government. – Schall & Hally

Meaning of Finance Management

Financial management is the managerial process of planning, collecting, investing, managing, protecting, and controlling financial resources for business firms. It is concerned with acquiring, financing, and managing assets with some overall goal.

Financial management is the acquisition, management, and financing of the firm’s financial resources due to regard for values in external economic markets.

Meaning of Finance Management

Definition of Finance Management

Let us look at this definition part by part.

  • Financial management is a managerial activity concerned with planning and controlling the firm’s financial resources. M. Pandey
  • Financial management is the acquisition, management, and financing of resources for firms by means of money. – G. E. Princes
  • We define financial management as the process of optimal use of financial and real or physical resources to increase the firm’s value. – Benton E.G.
  • Financial management is concerned with raising, allocating, and controlling the firm’s funds. – Berton A. Kolb
  • Financial management consists of all those activities that are concerned with obtaining money and using it effectively & efficiently. – Hughes & Kapoor
  • Financial management is the acquisition, management, and financing of resources for firms by means of money. – George E. Princes
  • The financial management process involves all the firm’s activities that link its financial decisions with the firm’s goal, the maximization of stockholder wealth. – C. P.Jones

Financial management is concerned with the duties of the finance manager in a business firm. He performs a variety of tasks as budgeting, financial forecasting, cash management, credit administration, investment analysis, and fund procurement.

Financial management is also called Managerial Finance, Corporate Finance, Business Financial Management, and Business Finance. 

Economics is the study of how scarce resources should be allocated among competing uses, and financial management is, in effect, applied economics because it is concerned with the allocation of a firm’s scarce financial resources among competing choices.

Financial management has evolved over time since its emergence as a separate field of study in the early part of the 20th century. The recent trend toward globalization of business activity has created new demands and opportunities in finance.

Definition of Financial Manager

Financial activity is usually associated with a top officer of the firm, such as the vice president, chief financial officer, and treasurer. Reporting to the chief financial officer is the treasurer and controller.

The treasurer is responsible for handling financial functions, including cash flows, managing capital expenditures, and making financial plans. The controller handles the accounting function, which includes taxes, cost and financial accounting, and information systems.

  • Financial manager actively manages the financial affairs of any business, whether financial or nonfinancial, private or public, large or small, profit-seeking or non-profit. – L. J. Gitman
  • Financial manager refers to anyone who is responsible for a significant investment or financial decision. – Brealy & Myers
  • A financial manager is a person who has the responsibility to allocate funds to current and fixed assets to obtain the best mix of financing alternatives and to develop an appropriate dividend policy within the context of the firm’s objectives. – Block & Hirt
  • Financial managers actively manage the financial affairs of any type of business. – Khan &Jain

A financial manager is a person responsible in a significant way for carrying out the finance functions. The most important function of a financial manager is to create value from the firm’s capital budgeting, investment, financing, and working capital activities.

Finance in the Organizational Structure of the Firm

The exact nature of the organization for financial management will differ from firm to firm. It will depend on factors such as the firm’s size, the nature of the business, financing operations, the capabilities of financial managers, and, most importantly, the financial philosophy of the firm.

In some cases, the financial manager may be known as the vice president of finance, the director of finance, or the financial controller.

Two officer treasurer and the controller may be appointed under the direct supervision of the chief financial officer to assist him. The simple organization chart is stated here:

  1. Capital Budgeting
  2. Cash Management
  3. Banking and Investment
  4. Credit Management
  5. Dividend Disbursement
  6. Financial Analysis and Plan
  7. Investor Relations
  8. Pension Fund Management
  9. Insurance and Risk Management
  10. Taxation and Auditing

It may state that the controller’s functions are related to the primary and internal works of the firms and concentrate on the asset side of the balance sheet.

At the same time, the treasurer’s functions are secondary and external works and relate to the liability side of the balance sheet.

The controller is the manager (accounts), and the treasurer is the financial manager. Their activities are typically within the control of the vice president (Finance).

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