Role & Objectives of Financial Management - Business Finance, Business Economics & Finance Video Lecture | Business Economics & Finance - B Com

hello and welcome to the first lesson
for HSC Business Studies unit 3 finance
now in this lesson we're going to be
looking at our first subject area which
is the role of financial management so
it's basically basically an overview of
what financial management involves and
the focus of the unit is on the
objectives of financial management and
all the activities that go along with
that part of the planning cycle so the
things that the financial managers do in
the finance department do to achieve the
objectives similar to other areas of
management financial management is also
about planning organizing and
controlling and in this case it's about
planning organizing and controlling the
financial resources of the business so
what is the strategic role of financial
management well basically it's to
provide a link and that link is between
what the business wants in the future so
its goals for the future and the kinds
of resources that will be needed to
achieve those goals or objectives but
simply how can a business finance its
future ambitions and goals so it's
ensuring that those resources are
available when they're needed now there
are lots of different types of
businesses small businesses we usually
have maybe a partner or maybe just one
person who's thinking about the
financial management of the business
sometimes that might be outsourced to an
accounting firm or a financial
management firm but in large businesses
and we're going to think about large
businesses this term the business
usually establishes a senior management
team
and they'll set the direction of the
business so a financial team would
usually have a CFO CFO is a chief
financial officer and that person would
usually be a senior member of management
part of the senior management team that
person is usually in control of the
finance area of the business and
responsible for assuring that the
resources are available so the kinds of
people who work in a large business in
the finance department if you look at
the flow chart and the diagram below the
hierarchy of a business you see that
there's a chief executive officer of the
business and under there the different
areas of Management and we looking at
those and we've already looked at
operations management and marketing
management as part of the course so far
there's also a human resources manager
and usually there will be a finance
manager now reporting directly to the
finance manager could be lots of
different areas the examples here show
areas such as managing the cash of the
business doing accounting auditing the
business so checking on the business's
accounts there may be a separate
department or area responsible for
raising finance and will certainly be an
area which concentrates on the future
budgets and planning now all the people
who work in a business irrespective of
whether they work in the finance
department will usually now have
financial knowledge it's a basic skill
of Management and business
so some of the roles of financial
management it's all about the strategy
so the strategic roles the roles that
are going to allow a business to fund
and manage their needs into the future
those areas might be accounting and
reporting it could be cost management
they'll certainly be an area of payments
paying invoices paying their creditors
and also play pane some of the
stakeholders including employees on a
payroll system financial management will
usually involve controlling the
inventory controlling the stock there's
usually an asset management component
where the large pieces of plants and
equipment are managed possibly written
off or leased over a period of time
there'll be an auditing department that
will be looking at how the business
manages their finance so doing internal
checks double your department possibly
looking at long and short term finance
how their investments are being managed
there'll be a credit control department
and as we've said before an area looking
to the Future looking in five sometimes
one-year five-year or ten-year stretches
where they look at things like budgeting
so some of the objectives of financial
management well the first objective
probably an obvious one profitability so
every owner of a business would like to
get a competitive return so a good
return on their investment to make a
profit
second objective is liquidity now
liquidity refers to a business's ability
to pay short-term debts now that might
be the wages of the employees it might
be invoices to suppliers so that they
can buy new equipment or new stock to
continue to make the goods and services
being able to pay these invoices these
short-term debts is called liquidity now
usually that's achieved by turning the
short-term assets into cash so the
things the goods that they produce
turning them into cash cash going into
the bank bill to pay serve it the the
bills the debts the invoices that are
needed to keep the business going on a
day to day basis the third objective of
financial management is to achieve
efficiency in the business that means to
do things efficiently sounds easy but
every department has to cooperate to
have an efficient running business
usually that's achieved by lowering
costs and getting greater output now
those greater outputs can be achieved
from the management of labor how people
are paid the amount of people that are
used to create the goods or services or
the machinery that is being used how
that is paid for so cost-cutting is a
very important part of achieving
efficiency but it's not the only way
that a business can achieve efficiency
rather than cost-cutting they look at
look at cost value trying to achieve the
best value from the resources that they
have
the fourth objective this is the
long-term financial management of a
business so as liquidity looked at the
short-term ability to pay debts solvency
looks at the ability of a business to
meet any long-term financial obligations
so payments of debts which are seen into
the future and looking at the ability of
the business to stay in business this is
called solvency the fifth objective is
growth all businesses would look to grow
over a period of time after they've gone
through that establishment phase so one
of them key areas of a financial
management system is to increase the
value of the business to grow the
business and financial managers will be
looking all the time to think about how
the business can grow financially and as
part of the industry that they're
operating in now that can be done
through marketing through development
developing new products and it might be
the acquisition of new businesses
businesses that link directly to what
that business is doing or as a
complement to the business
the sixth objective is return on capital
so return on the investment that has
been made in the business that may be a
return on the capital of the owners so
the owners may put money into the
business and they would expect a return
for investing that money it also might
mean that the shareholders the people
who have bought shares in the business
would like a return on their investment
they would like to see some profit or a
dividend on their investment so the
financial management team need to make
sure that their resources land labour
machinery are all working to give a good
return to the business this is called
return on capital
and seventh along in short-term
objectives most businesses will have a
plan goals for the future
and there will be short term and long
term plans in the short term a business
is certainly going to be looking to
increase their profits to make sure they
have a liquidity make sure they can meet
the short-term debts and usually a
business will try to increase their
market share against their competitors
try and make sure that more people are
buying their products over the products
offered by the competitor now in the
long term some of the objectives will be
growth efficiency and obviously solvency
so the business can't in continue to
function in the long term