Finance is called “The science of money”. It studies the principles and the methods of obtaining control of money from those who have saved it, and of administering it by those into whose control it passes. Finance was a branch of Economics till 1890. Economics is defined as study of the efficient use of scarce resources. The decisions made by business firm in production, marketing, finance and personnel matters form the subject matters of economics.
Financial management is managerial activity which is concerned with the planning and controlling of the firm’s financial resources.
Objectives of Financial Management:
The very objective of Financial Management is to maximize the wealth of the shareholders by maximizing the value of the firm. This prime objective of Financial Management is reflected in the EPS (Earning per Share) and the market price of its shares.
The earlier objective of profit maximization is now replaced by wealth maximization. Since profit maximization is a limited one it cannot be the sole objective of a firm. The term profit is a vague phenomenon and if given undue importance problems may arise whereas wealth maximization on the other hand overcomes the drawbacks of profit maximization. Thus the objective of Financial Management is to tradeoff between risk and return. The objective of Financial Management is to make efficient use of economic resources mainly capital.