For a business firm, what type of activities does financial management involve?

Question:

For a business firm, what type of activities does financial management involve?

Answer:

Financial management:

It means planning, organizing, directing and controlling the financial activities of an enterprise.

Financial management revolves around the three major functions – financing funds, investing funds and distribution of surplus. For a business firm, financial management comprises all the activities concerned with the above three functions, including the following:

– Formulating financial strategy aligned with the organizational goals.

– Determining optimum composition of capital structure.

– Estimating capital requirements and preparing capital budgets.

– Selecting between various sources and types of funds.

– Effective investment of funds assuring profit maximization.

– Effective working capital and cash-flow management.

– Monitoring and evaluating financial performance by establishing controls.

– Distribution of surplus in the form of dividends or bonus issues.

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