In the early words just to express that how crucial Finance is, I would like to tell you that Finance is the life blood of business. Finance is must for every process of business. In a business you will be requiring finance for trade, industry and commerce. Finance is required for establishing, developing and operating the business efficiently. But more importantly without adequate finance no business can survive and without efficient financial management no business can prosper and grow.
Basically in more easy words, finance is the study of money management. Finance is everything, it’s not only about raising the funds but it is also about how to utilize the raised up money. Financial function has two approaches. Traditional approach: Main function of finance in traditional approach is limited to rising of funds. In this approach emphasis was laid on the study of rising capital, institutional sources and current practices of finance. Traditional approach is descriptive in nature and has many advantages but modern approach is far more descriptive and has much more advantages than the old or traditional one.
Traditional approach was analytically not sufficient. It was lacking as the measurement of numbers was not getting possible. Modern approach is not limited to procurement of fund rather it has a huge involvement in planning, control and administration of the funds used in business activity. There are three basic decisions related to financial management. These decisions are namely Finance decision, Investment decision and dividend decision. These all three carry a huge importance when it comes to finance decision. Finance decision is important as it decides the capital structure of firm. It is responsible for the decision related to the amount of Equity or debt in a capital structure. Then we have Investment decision, it is very crucial as it allocates the funds of a firm to the desired or needed place. Investment decision caters the allocation of funds either as fixed assets or as current assets. Thirdly what we have is Dividend decision. It is one of the most important decision as it caters the allocation of income. I mean, the purpose of dividend decision is to distribute the money among the shareholders of the company. So the three main decisions should be crystal clear to you. Make sure you keep these things in mind as you know, without efficient financial management no business can prosper and grow.