Scope of Financial Management
Finance is not a standalone activity of any organization. The three most important activities of business firm are: Production, Finance and Marketing.
A firm secures whatever capital it needs and employs it in activities, which generate returns on investment. Thus the scope of Finance spreads in the following areas
EQUITY AND BORROWED FUNDS: Equity and Debt are the two types of that a firm can raise. A firm sells shares to primary market to acquire equity funds. Shareholder invests their money in the shares of a company in the expectation of a return on their investment. Another important source of raising capital is from creditors. Creditors may be another firm, a financial institution or a bank. Lenders are not the owners of the company they just make money from the interest that a company pays because of his loan.
REAL AND FINANCIAL ASSETS: A firm requires real assets to carry on its business. Assets may be tangible or real assets or intangible assets. Tangible are physical assets that include plant, machinery, office, building etc. On the other hand know-how, patents, copy rights etc. are called intangible assets. Financial assets which are also called securities are financial paper or instrument such as share and bonds or debenture. Financial assets also include lease obligation and borrowing from banks, financial institutions and other sources.
FINANCE AND MANAGEMENT FUNCTION: As we already see that finance is inter-linked with other function of the business. Almost all business activities directly or indirectly involve the acquisition and use of funds. For example recruitment of a worker for a production purpose is a responsibility of production department but payment of wages involves finance. Similarly all the sales and marketing activities involve finance. Thus we see that finance and marketing activities are directly linked and dependent to each other.