Meaning of Financial Management

Financial Management is such a managerial process, which is concerned with the planning and control of Financial resources. It is being studied as a separate subject in 20th century. Till now it was used as a part of economics. Now, its scope has undergone some basic changes from time to time. In present time, it analyses all financial problems of a business. Financial Manager estimates the requirements of funds, plans the different sources of funds and perform functions of collection of funds and its effective utilisation.

Finance is such a powerful source that it performs an important role to operate and coordinate the various economic activities of business. Finance is of two type:-

  1. Public finance.
  2. Private finance.

1. Public Finance:- means government finance under which principles and practices relating to the procurement and management of funds for central government, state government and local bodies are covered.
2. Private Finance:- means procurement and management of funds by individuals and private institutions. Under it we observe as to how individuals and private institution procure funds and utilise it.


What is finance? What are a firm’s financial activities? How are they related? Firm create manufacturing capacities for production of goods, some provide services to customers. They sell goods or services to earn profit and raise funds to acquire manufacturing and other facilities. Thus, the 3 most important activities of business firm are:-

  1. Production
  2. Marketing
  3. Finance.

A firm secures whatever capital it needs and employs it (finance activity) in activities, which generate returns on, invested capital (production and marketing activities.)

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