Business Finance or Financial management refers to that part of the management activity which is concerned with the planning, raising, controlling and administration of the funds used in the business. Its main objective is to use the funds of the business in the most appropriate way.
In simple words we can say financial management refers to “Efficient acquisition of finance, efficient utilisation of finance and efficient distribution and disposal of surplus funds for smooth working of the company.”
Objectives of financial management:
Efficient financial management requires the existence of some objectives or goals because judgement as to whether or not a financial decision is efficient is to be made in light of some objective.
The two main objectives of financial management are:
1. Profit Maximisation: It is traditionally being argued that the objective of a company is to earn profit, hence the objective of financial management is profit maximisation. Each alternative is to be seen by the finance manager from the view point of profit maximisation. Profit maximization causes the efficient allocation of resources in competitive market conditions and profit is considered as the most important measure of firm performance.
2. Wealth maximisation: The second objective of financial management is wealth maximization. The concept of wealth in the context of wealth maximization objective refers to the shareholders’ wealth as reflected by the price of their shares in the share market. Therefore, wealth maximization means maximization of the market price of the equity shares of the company. The objective of wealth maximization implies long-run survival and growth of the firm.
In addition to the above, there are some other objectives of financial management which are stated below:
(i) Financial management helps in ensuring the regular supply of funds to the related concern.
(ii) Financial management ensures the optimum utilization of funds.
(iii) It helps in investing in safe areas, so that the great R.O.I. can be achieved.
(iv) Financial management helps in planning a good Financial Structure. There should be maintained a fair balance between the debt and Equity Capital.
