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Meaning of Financial Management
Financial management is defined as the process of planning the funds, controlling them, and directing them toward procurement and utilization of fund .it also means to apply general management principles to the financial resources of the enterprise.
Using management practices to the financial resources means managing the activity of the company that is related to money such as buying, selling and also using the money to maximize wealth and produces the best value for money.
financial management is also defined as the management of finance of an enterprise in order to achieve the financial goal and objective of a company.
“Financial management is concerned with raising financial resources and their effective utilization towards achieving the organizational goals” Dr. S. N. Maheshwari
“Financial management is the process of putting the available funds to the best advantage from the long-term point of view of business objectives” Richard A. Brealey
Financial management is very crucial for both the sectors which are private and public.
If we say commercial business as the most common business structure,
The main objectives of financial management will be :
Create wealth for the organization
Provide an optimum return on investment.
Following are the key element in the process of financial management :
(1) Financial Planning
Management needs to ensure that there should be enough fund available at the right time in order to meet business needs. Speaking of short-term funding may be required for
Equipment and stock
Sale fund made on credit.
Same as for the medium and long-term, funds are required for addition in the productive capacity of the business or even to make the acquisition. It links to the process of making financial decisions and forecasting
(2) Financial Control
It is the critical part of the financial management the ensures that business objectives are being met adequately. Financial control asks questions such as:
Are assets being used efficiently?
Are the businesses assets secure?
Do management act in the best interest of shareholders and follows the business rules?
(3) Financial Decision-making
Financial decision making have following the key element
must be financed in some way as there are always financial alternatives that can be noticed or considered such as selling of the new shares, bank borrowing or credit from the suppliers if we deal with the fixed asset or projects it connects to the capital budgeting
- Financial options
It is concerned with the raising of the capital through various sources such as banks or financial investors which depends on the following options for the type of source;
Period of financing
Cost of financing
The net present result generated.
the key financial decision regarding the dividends is whether to distribute the dividend among the shareholder or to retain it for future investment as if the dividend is too high to be paid it will cause the scarcity of the fund to the business and will lost its capacity of investing in the future growth.
financial management is not only related to the business aspect but it also relates to our day to day life also to our family as we need to manage the budget in all these aspects.
Objectives of Financial Management
The main objective of the financial management is
the main objective is to maximize the profit in the private sector. The one who is responsible for all the earning and to assist all the earning to word the maximization of profit is the financial manager, in the short term and the long term. However, in the long term, there is uncertainty in the business so they can not guaranty profit. If a company wants to earn profit they should follow :
A] management and finance manager should take a proper finance decision and plan it in a well-organized manner.
B] finance of the company should be utilized in carefully and strategical manner.
shareholder’s value maximization is an important objective of financial management. Wealth maximization is to earn the maximum profit (wealth) for the shareholders’, here the finance manager tries to achieve maximum dividend and also increases the value of the share in the market, as the value to share is directly related to the performance of the company.
3.Adequate forecasting of the total financial cash requirement :
The adequate forecasting of the financial requirement is a very important objective of the financial management as the finance manager should be very accurate with the forecasting function. he should furcate as exact as possible as he has to furcate about the working capital and the fixed capital in the future for the company, hoe the cash will be generated how it should be utilized in order to achieve the profit and it not the surplus of fund occur, what to do.
Forecasting is not an easy job as the manager should keep the following factor in the mind such as
Type of technology used by the company
Number of employees
Scale of operation
Legal and political Environnement
Economy and many more
4.Proper resourcing :
After forecasting the function comes to resource the cash in proper order, the finance manager can resource cash from the bank, debentures etc. as the manager should keep the proper balance between the borrowed fund and the owned fund. The borrowed fund must be in the lowest possible rate of interest.
Note: here are some more objective of financial management
5.Proper utilization of finance cash
6. Maintaining proper cash
7.Survival of company
- To invest finance only in productive areas.
•To avoid wastage and misuse of finance.
13. Reducing the cost of capital.
14.Reducing operating risks :
15.Constructing the best capital structure
At last, the senior management will take all the responsibility for financial decisions