• The management functions related to planning and control of financial resources in an institute is known as financial management.
• The main goal of financial management is to maximize the business related value (wealth) of the proprietors of the business.

Sources of funds can be classified on various criteria 

• As internally and externally

• As direct and indirect

• As direct and indirect

• Two types of vital decisions are made in financial management:
  • Investment decisions
  • Financing decisions

Investment decisions 

• Decisions made to invest funds in fixed assets and current assets are investment decisions.

Financing decisions

• Decisions regarding how to provide the funds for investing in fixed and current assets are financing decisions.

Cash budget

• The cash budget is prepared considering the expected cash receipts and cash payments in a particular future period.
• Cash budget can be identified as an internal financial estimate used in planning and decision making.
• Uses of preparing a cash budget:
  • Ability to make effective cash investments, if any future cash excess can be identified in advance
  • Ability to prepare for possible cash shortages successfully in any future shortage can be identified in advance
  • Facilitating planning and control of cash by comparing with actual cash transactions

Capital budget

• Planning to invest the funds currently available in a business in long term assets or long term projects with the purpose of gaining future benefits is known as capital budgetting.
• Capital budgetting decisions made by the finance manager are known as long term investment decisions.
• Eg;
  • Constructing a new building with the purpose of expanding business affairs.
  • Purchasing a new machine.
  • Long term expenses incurred for advertising programmes.