The term Financial Management has been defined differently by different authors. According to Solomon “Financial management is concerned with the efficient use of an important economic resource, namely Capital funds”.

There are two basic aspects of Financial Management

(i) Procurement of Funds

(ii) Effective use of these funds.

Procurement of Funds: Since funds can be obtained from different sources therefore their procurement always considered as a complex problem by business concerns. Funds procured from different sources have different characteristics in terms of risk control & cost.

The funds raised by the issue of equity shares are the best from the risk point of view for the company. Since these are no question of repayment of equity capital except when the company is under liquidation from the cost point of view. However, equity capital is usually the most expensive source of funds. This is because the dividend expectations of share holders are normally higher than prevalent interest rate and also because dividend is an appropriation of profits not allowed as an expense under the income tax act. Also the issue of new shares to public may dilate the control of the existing share holders.

Effective of Utilisation of funds:

The financial manager is also responsible for effective utilization of funds he has to point out situation where the funds are being kept idle or where proper use of funds is not being made.

All the funds are procured at a certain cost and after entailing a certain amount of risk. If these funds are not utilized in the manner so that they generate an income higher than the cost of procure them. There is no point in running the business. This is also an important consideration on dividend decision.