I. INTRODUCTION 1.1 FINANCE Finance is the life blood of business.

Finance may be defined as the

art and science of managing money. Finance also is referred as the provision of money at the time
when it is needed. Finance function is the procurement of funds and their effective utilization in
business concerns. The term financial management has been defined by Solomon, “It is concerned
with the efficient use of an important economic resource namely, capital funds”. The most popular
and acceptable definition of financial management as given by S. C. Kuchal is that “Financial
Management deals with procurement of funds and their effective utilization in the business.
Financial management is the operational activity of a business that is responsible for obtaining and
effectively utilizing the funds necessary for efficient operations. Thus, Financial Management is
mainly concerned with the effective funds management in the business. Financial management is
that activity of management which is concerned with the planning, procuring and controlling of the
firm's financial resources. It means applying general management principles to financial resources of
the institutions. Financial activities of an institutions is one of the most important and complex
activities of a firm. Therefore in order to take care of these activities a financial manager performs all
the requisite financial activities. A financial manager is a person who takes care of all the important
financial functions of an organization. The person in charge should maintain a far sightedness in
order to ensure that the funds are utilized in the most efficient manner. His actions directly affect the
Profitability, growth and goodwill of the firm. The scope and coverage of financial management have
undergone fundamental changes over the last half a century. During 1930s and 1940s, it was
concerned of raising adequate funds and maintaining liquidity and sound financial structure. This is
known as the 'Traditional Approach' to procurement and utilization of funds required by a firm. Thus,
it was regarded as an art and science of raising and spending of funds. The traditional approach
emphasized the acquisition of funds and ignored efficient allocation and constructive use of funds. It
does not give sufficient attention to the management of working capital. During 1950s, the need for
most profitable allocation of scarce capital resources was recognized. During 1960s and 1970s many
analytical tools and concepts like funds flow statement, ratio analysis, cost of capital, earning per
share, optimum capital structure, 2 portfolio theory etc. were emphasized. As a result, a broader
concept of finance began to be used. Thus, the modern approach to finance emphasizes the proper
allocation and utilization of funds in addition to their economical procurement. Thus, business
finance is defined as" the activity concerned with the planning, raising, controlling and administering
of funds used in the business." Modern business finance includes – (i) Determining the capital
requirements of the firm. (ii) Raising of sufficient funds to make an ideal or optimum capital structure
(iii) Allocating the funds among various types of assets (iv) Financial control so as to ensure efficient
use of funds. 1.2 DEFINITION OF FINANCIAL MANAGEMENT “Financial management is the activity
concerned with planning, raising, controlling and administering of funds used in the business.” –
Guthman and Dougal “Financial management is that area of business management devoted to a
judicious use of capital and a careful selection of the source of capital in order to enable a spending
unit to move in the direction of reaching the goals.” – J.F. Brandley “Financial management is the
operational activity of a business that is responsible for obtaining and effectively utilizing the funds
necessary for efficient operations.”- Massie 1.3 NATURE OF FINANCIAL MANAGEMENT 1. Financial
Management is an integral part of overall management. Financial considerations are involved in all
business decisions. So financial management is pervasive throughout the organisation. 2. In most of
the organizations, financial operations are centralized. This results in economies. 3. Financial
management involves with data analysis for use in decision making. 4. The central focus of financial
management is valuation of the firm. That is financial decisions are directed at
increasing/maximization/ optimizing the value of the firm. 5. Financial management essentially
involves risk-return trade-off Decisions on investment involve choosing of types of assets which
generate returns accompanied by risks. Generally higher the risk, returns might be higher and vice
versa. So, the 3 financial manager has to decide the level of risk the firm can assume and satisfy with
the accompanying return. 6. Financial management affects the survival, growth and vitality of the
firm. Finance is said to be the life blood of business. It is to business, what blood is to us. The
amount, type, sources, conditions and cost of finance squarely influence the functioning of the unit.
7. Finance functions, i.e., investment, rising of capital, distribution of profit, are performed in all firms
- business or non-business, big or small, proprietary or corporate undertakings. 8. Financial
management is a sub-system of the business system which has other subsystems like production,
marketing, etc. In systems arrangement financial subsystem is to be well-coordinated with others and
other sub-systems. 9. Financial Management is the activity concerned with the control and planning
of financial resources. 10. Financial management is multi-disciplinary in approach. It depends on
other disciplines, like Economics, Accounting etc., for a better procurement and utilisation of
finances.