Explain the meaning and any two importance of Financial Management.

Answer – Financial management plans, obtains and uses funds to support the enterprise's objectives. It aims to procure funds at suitable cost and risk and to deploy them effectively.

Primary objective: maximise shareholders' wealth, reflected in the market value of equity shares. Sound decisions consider expected return, timing and risk, rather than accounting profit alone. Profitability and adequate liquidity are important supporting requirements; excessive idle cash reduces return, while inadequate cash threatens payment capacity.

Role and influence: financial management affects the size and composition of fixed assets; the amount of current assets; the amount of short- and long-term finance; the debt-equity mix; and important income-statement items such as interest and depreciation.

Three decisions: investment determines where funds are used; financing determines the sources and their mix; dividend determines how earnings are divided between distribution and retention. The decisions are interrelated: expansion needs finance, and retaining earnings can reduce external borrowing.