Financial Management

Financial management is a technique for managing funds effectively whether it is a corporation or an individual. Financial management has different implications for corporations and individuals. For corporations, it is meant for effective procurement and utilization of funds. On the other hand, for individuals, it is meant to manage its earnings in order to have good financial health and stability in future.

The word ‘Financial Management’ is a combination of two crucial words in business environment viz. ‘Finance’ and ‘Management’. ‘Finance’ means funds and therefore, financial management refers to the management of funds. It is a technique of planning, sourcing and investing funds in most effective manner.

Broadly speaking, financial management is nothing but the planning of expenditures and incomes to ensure financial stability. Financial stability implies availability of sufficient money at the time of requirement. It is a key concern to be addressed for many entities. Entities may include corporations (for sourcing and investments of funds), individual (planning for future expenditures and incomes), government (utilizing the public money in most efficient manner), non-profit organizations (planning of funds required for activities to be undertaken) etc.

Financial management can be broadly classified into two levels –

Financial Management

Corporate Financial Management

Corporate finance deals with the financial decisions taken by a company to achieve its financial and other goals. Financial decisions involve procurement of funds and utilization of funds. The expected outcome of activity of ‘Procurement of Funds’ is not only limited to the acquisition of required funds for business but it should be ensured that it is acquired at the lowest possible costs (interest or dividends expectations etc), risks (repayment of funds creating bankruptcy risk) and dilution in control (dilution of shareholding and thereby control over the company).

On the other hand, ‘Utilization of Funds’ entails employment of funds at the right place to ensure highest returns possible which are at least more than the cost of funds. It also needs to ensure that there are no idle funds to incur cost unnecessarily.

Personal Financial Management

Personal finance deals with monetary decisions required at the individual level. It involves evaluating requirements of money in terms of ‘quantum’ and ‘time’ and then planning for earnings, expending, saving, budgeting and investing of money to achieve financial stability and health. It does not mean earning more money but it means utilizing the earned money to satisfy all the requirements in best possible manner. The ultimate aim of personal financial management is to ensure the balance between earnings and incomes. The main components of personal finance are insurance, tax planning, loans like home loans and personal loans, retirement planning, social security, banking etc.

Forecasting Models

Understanding Forecasting Models Forecasting models utilize historical and current information to provide a range of probable outcomes. The objective of a forecasting model is to extrapolate past and current …

Agency Cost

What is Agency Cost? Agency cost is the cost incurred because of conflict that arises between the shareholders and the managers of a company. These conflicts arise because shareholders …

SWOT Analysis

Definition of SWOT Analysis SWOT analysis is a method for identifying organization’s strengths, weaknesses, opportunities, and threats. SWOT analysis evaluates what an organization can or cannot do in terms …

Total Quality Management

Definition of Total Quality Management Total Quality Management (TQM) is also referred to as total productive maintenance. It is the approach of the management to achieve long-term success by …

Financial Modeling

Meaning of Financial Modeling Financial modeling is the process conducted to create a financial representation of the entity. It is through this financial model that the financial analyst tries …

Financing Strategies

Meaning of Financing Strategies A financing strategy establishes the fundamental steps of how an organization can achieve its financing targets, be it short term or long term. It involves …