Nature, Significance and Scope of Financial Management

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Financial management can be defined as the management of finance of an organization or a business to accomplish financial objectives. In an organization the main objectives of financial management is to generate wealth for organization, generate cash and make maximum profits from the investments of the organization considering the risks involved.
  • Solomon has said that Financial Management is concerned with the efficient use of an important economic resource namely, capital funds.
    In words of Weston and Brigham Financial management is an area of financial decision-making, harmonizing individual motives and enterprise goals.

    Financial management involves three main decisions

    Investment Decisions: This decision is taken to decide in which asset or project investment should be made. There may be various options available to the Financial Manager in which investment can be done. However he has to choose the best option. This decision is known as Investment decision. 

    Financing Decision: This decision involves making decision about from which source of finance how much finance should be raised. Finance managers made decision on the basis of cost and risk involved from each source of finance. 

    Dividend Decision: This decision involves making decision as to how much profit earned should be distributed as dividend among shareholders.

    Decision Criteria
    Financial decision are taken on the basis of following criteria
    • Urgency
    • Pay back
    • Rate of return
    • Undiscounted benefit cost ratio
    • Present value method

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