Financial Management

Concept of Finance
Finance can be defined as the management of the flows of money through an organization, whether it be a corporation, school, bank or government agency. In general term, finance is the management of money. Finance concerns itself with the actual flows of money as well as any claims against money. In other words, finance can be defined as the art and science of managing money. Virtually all individuals and organization earn or raise money and spend or invest money. Finance is concerned with the process, institutions, markets and instruments involved in the transfer of money among and between individuals, business and governments.

Financial Management 

Financial management involves the solution of the three major decisions. They determine the value of a company to its shareholders. Assuming that our objective is to maximize this value, the firm should strive for an optimal combination of the three interrelated decisions, solved jointly. The decision to invest in a new capital project, for example, necessitates financing the investment. The financing decision, in turn, influences and is influenced by the dividend decision, for retained earnings used in internal financing represent dividends forgone by stockholders. With a proper conceptual framework, joint decisions that tend to be optimal can be reached. The main thing is that the financial manager relates each decision to its effect on the valuation of the firm.

In an endeavor to make optimal decisions, the financial manager makes use of certain analytical tools in the analysis, planning, and control activities of the firm. Financial analysis is a necessary condition or prerequisite for making sound financial decisions. One of the important roles of a chief financial officer is to provide accurate information on financial performance.