Explain Scope of financial management

The scope of financial management refers to the range of activities or operations that are covered under the domain of financial management. It involves the application of management principles to the financial assets of an organisation, while also playing an important part in fiscal management. Here are the key aspects that fall under its scope:

1. Investment Decisions: One of the primary aspects of financial management is deciding where the funds will be invested. This includes both the short-term and long-term investment decisions. Short-term investment decisions are also known as working capital decisions. These involve managing the current assets and current liabilities, inventory control, cash management, and debtor’s management. Long-term investment decisions are also known as capital budgeting decisions and relate to fixed assets. These decisions are based on several criteria such as risk, return, cash flow, and profitability.

2. Financing Decisions: Another crucial aspect is deciding the source of finance. A financial manager must decide the type of source which will be suitable for the business. The source can be either long term or short term, and it can be raised either through equity shares, debentures, loans, or retained earnings.