## Introduction and Meaning of Financial Management
### What is Financial Management?
Financial management is the managerial activity concerned with planning and controlling a firm's financial resources — specifically, acquiring, financing, and managing assets to accomplish the overall goal of maximising shareholder wealth.
In today's environment where positive cash flow matters more than book profit, financial management is also defined as planning for the future to ensure positive cash flow. It is sometimes called the science of money management.
More comprehensively, it comprises forecasting, planning, organising, directing, co-ordinating, and controlling all activities relating to acquisition and application of financial resources.
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### Stages in Starting a Business (Financial Questions)
Every entrepreneur must answer four foundational financial questions:
| # | Question |
|---|---|
| 1 | Which assets to buy? |
| 2 | What is the total investment required? |
| 3 | How much working capital is needed for daily operations? |
| 4 | What sources of finance to use (equity, borrowings, institutions)? |
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### Three Core Financial Decisions
```
┌─────────────────────────────────────────────────┐
│ Where to get money? → Financing Decision │
│ Where to invest? → Investment Decision │
│ How much to return? → Dividend Decision │
└─────────────────────────────────────────────────┘
```
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### Two Basic Aspects of Financial Management
1. Procurement of Funds — raising money from the right sources at the right cost
2. Effective Use of Funds — deploying those funds to generate returns greater than their cost
Both aspects are equally important. Funds raised at a cost must generate income higher than that cost, otherwise running the business becomes meaningless.