Scope, Functions, Meaning and Financial Controls of Financial Management

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Scope and Functions of Financial Management (Management)

Meaning of Financial Management

  • Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the organization.
  • It means just dealing with the general management principles to financial resources of the organization.

Scope of Financial Management

Financial Management

Investment Decisions

  • Investment decisions includes investment in fixed assets which is also called as capital budgeting.
  • Investment in current assets is also a part of investment decisions called as working capital decisions.

Financial Decisions

  • It may be from various resources and here consider about type of source, period of financing, cost of financing and the returns of investment.

Dividend Decision

  • The Finance manager has to take decision regarding the dividend.

Net profits are generally divided into two:

  • Dividend for shareholders- Dividend and the rate to be decided which is given to the shareholders.
  • Retained profits- not giving to the shareholders and just retained depend upon expansion and diversification plans of the organization.

Functions of Financial Management

Financial Management

Estimation of Capital Requirements

  • A finance manager should focus on capital requirements of the company.
  • This will depend upon expected costs and profits of a business
  • Estimations have to be made which increases the earning capacity of business.

Determination of Capital Composition

  • Once the estimation have been made
  • The capital structures have to be decided.
  • This involves short- term and long- term debt equity analysis.
  • This will depend upon the equity capital of a company and additional funds which have to be raised from outside parties.

Choice of Sources of Funds

Fund Source

Investment of Funds

  • The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns on investment.

Disposal of Surplus

  • Made by the finance manager.
  • This can be done in two ways:
  • Dividend declaration - the rate of dividends and other benefits.
  • Retained profits - expansional, innovational, diversification plans of the company.

Management of Cash

  • Finance manager has to make decisions regarding cash management.
  • Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintenance of enough stock, purchase of raw materials, etc.

Financial Controls

  • The finance manager has not only focus on plan, procure and utilize the funds
  • But he also has to exercise control over finances.


1. Profits are retained in the business for further expansion and diversification plans is called________

a. Retained profits

b. Dividend

c. Reserve

d. Provision

Answer: A

2. How the additional funds are procured by the business?

a. Issue of shares

b. Issue of debentures

c. Loans and Public deposits

d. All the above

Answer: D