Concept of Financial Management: It refers to that part of the management activity which is concerned with the efficient planning and controlling of financial affairs of the enterprise. In other words, it can be said that under financial management, first of all, need for finance is estimated and then different sources of obtaining finance and its quantum are determined and finally arrangements are made for the distribution of profit.

Objective of Financial Management: The objective of financial management is to maximise the wealth of the owners of the business to the maximum extent.

According to this approach, owners’ interest can be best served by wealth maximisation. Wealth maximisation means to increase the capital invested in the business by the shareholders. Market price of the shares is the index of the capital invested. If the market price of the shares increases, it can be said that capital (wealth) invested by the shareholders has been appreciating. On the contrary, fall in the market price of the shares has an adverse effect on their wealth. Wealth of the shareholders can be computed by the following formula.