NATURE OF FINANCIAL MANAGEMENT

Question No.1. (a) “ Financial Management is more than procurement of funds.” Explain.

Solution: According to Ezra Solomon, "the function of financial management is to review and control decision to commit and recommit funds to new and ongoing uses. In addition to raising funds, financial management is directly concerned with production, marketing and other functions within an enterprise whatever decisions are made about the acquisition or distribution of assets". From this statement, it is clear that the main function of financial management is not only to raise funds but includes the broader area of managing the finances for the firm more efficiently. Thus, the two main decisions involved in a firm are: 1) Investment Decision and 2) Financing decision including Dividend decision

1. Investment Decision

The funds available may be invested in any project. The financial management provides a framework to make investment wisely. Investment decision relates to: 1) Management of working capital 2) Capital budgeting decision 3) Management of mergers, re-organisation and disinvestment 4) Buy or lease decision 5) Securities analysis and portfolio management

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