finance can be broadly defined as the activity concerned with the planning, raising, controlling and administering the funds used in the business. Importance of Financial Management : Finance is the life blood and nerve centre of a business, just as circulation of blood is essential in the human body for maintaining life, finance is very essential to smooth running of the business. In sole proprietorship form of organisation, a single individual promotes, finances, controls and manages the business enterprise. Conceiving an idea to business, finance is needed to promote or establish the business, acquire fixed assets, make investigations such as market surveys, etc., develop product, keep men and machine at work, encourage management to make progress and create values. As a separate managerial activity, it has a recent origin. In the initial stages of the evolution of corporation finance, emphasis was placed on the study of sources and forms of financing the large sized business enterprises. (ii) The second approach relates finance to cash.
Corporation finance, usually, deals with financial planning, acquisition of funds, use and allocation of funds, and financial controls. Further, newer avenues of raising finance with the introduction of new capital market instruments such as PCDs, FCDs, PSBs and CPPs etc. Being a mere creation of law, it possesses only the properties which the charter of its creation confers upon it either expressly or as incidental to its very existence. It may come into existence either as a result of the expansion of sole-trade business or by an agreement between two or more persons.
Thus, the scope of financial management widened to include the process of decision-making within the firm. Massie, Financial management is the operational activity of a business that is responsible for obtainting and effectively utilising the funds necessary for efficient operations. Every enterprise, whether big, medium or small, needs finance to carry on its operations and to achieve its targets. Finance refers to the management of flows of money through an organisation. Age of the firm vii. Even an existing concern may require further finance for making improvements or expanding the business. Corporation is a legal entity having limited liability, perpetual succession and a common seal. It concerns with the application of skills in the manipulation, use and control of money. It is composed of two words: advertisements: (i) Business, and (ii) Finance. The techniques of analysing capital investment in the form of capital budgeting were also developed. Thus, the scope of corporation finance is so wide as to cover the financial activities of a business enterprise right from its inception to its growth and expansion and in some cases to its winding up also. Financial management refers to that part of the management activity which is concerned with the planning and controlling of firms financial resources.
Business finance can further be sub-classified into three categories, viz.; (i) Sole-propritory finance, (ii) Partnership firm finance, and (iii) Corporation or company finance. It also includes all those activities which indirectly help in production and exchange of goods, such as, transport, insurance, banking and warehousing, etc. State of economy. The Option Pricing Theory was also developed in the form of the Binomial Model and the Black-Scholes Model during this period. The most appropriate use of such funds also forms a part of financial management. He also bears the whole risk of business. Expected return, cost and risk iii.