What is financial management?write role ot financial management and ob...
Financial management is the process of planning, organizing, controlling, and monitoring the financial resources of an organization to achieve its goals and objectives. It involves making decisions about how to allocate and utilize funds, as well as managing the financial risks and ensuring the financial stability of the organization.
Role of Financial Management:
1. Financial Planning: Financial management plays a crucial role in the planning process. It involves determining the financial goals and objectives of the organization and developing strategies to achieve them. This includes forecasting future financial needs, estimating revenues and expenses, and creating budgets.
2. Capital Structure Management: Financial management helps in determining the optimal capital structure of the organization. It involves making decisions about the mix of debt and equity financing that will maximize the value of the organization. This includes raising funds from various sources such as equity shares, loans, debentures, etc.
3. Investment Decisions: Financial management is responsible for evaluating and selecting the most profitable investment opportunities for the organization. It involves analyzing the potential returns and risks associated with different investment options and making informed decisions to maximize shareholder wealth.
4. Risk Management: Financial management plays a crucial role in identifying and managing financial risks. It involves assessing and mitigating risks related to market fluctuations, interest rates, exchange rates, credit, liquidity, and operational factors. This helps in safeguarding the organization's financial health and minimizing potential losses.
5. Financial Control: Financial management ensures effective control over the financial activities of the organization. It involves establishing internal controls, monitoring financial performance, conducting audits, and ensuring compliance with financial regulations. This helps in preventing fraud, mismanagement, and financial irregularities.
Objectives of Financial Management:
1. Profit Maximization: One of the primary objectives of financial management is to maximize profits for the organization and its shareholders. This is achieved by effectively managing costs, optimizing revenue generation, and making wise investment decisions.
2. Wealth Maximization: Financial management aims to maximize the wealth of the shareholders by increasing the value of the organization. It focuses on making decisions that enhance the long-term financial position and sustainability of the organization.
3. Liquidity Management: Financial management ensures that the organization maintains adequate liquidity to meet its short-term obligations. It involves managing cash flows, maintaining appropriate levels of working capital, and utilizing financial instruments to manage liquidity risks.
4. Growth and Expansion: Financial management plays a crucial role in supporting the growth and expansion plans of the organization. It involves securing funds for capital investment, identifying growth opportunities, and allocating resources effectively to achieve sustainable growth.
5. Risk Minimization: Financial management aims to minimize financial risks by implementing risk management strategies. It involves diversifying investments, hedging against risks, and maintaining appropriate insurance coverage to protect the organization from potential losses.
In conclusion, financial management is a vital aspect of organizational management that involves planning, organizing, controlling, and monitoring financial resources. Its role encompasses financial planning, capital structure management, investment decisions, risk management, and financial control. The objectives of financial management include profit maximization, wealth maximization, liquidity management, growth and expansion, and risk minimization. By effectively managing finances, organizations can achieve their goals and ensure their long-term financial stability.
What is financial management?write role ot financial management and ob...
Meaning of Financial ManagementFinancial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.
Scope/ElementsInvestment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two:Dividend for shareholders- Dividend and the rate of it has to be decided.Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.Objectives of Financial ManagementThe financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be-
To ensure regular and adequate supply of funds to the concern.To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.Functions of Financial ManagementEstimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future programmes and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise.Determination of capital composition: Once the estimation have been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties.Choice of sources of funds: For additional funds to be procured, a company has many choices like-Issue of shares and debenturesLoans to be taken from banks and financial institutionsPublic deposits to be drawn like in form of bonds.Choice of factor will depend on relative merits and demerits of each source and period of financing.Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible.Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two ways:Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus.Retained profits - The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company.Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintainance of enough stock, purchase of raw materials, etc.Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.
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