Financial Management, Objectives
Financial management refers to the strategic planning, organizing, directing, and controlling of financial undertakings in an organization or institute. It also includes applying management principles to the financial assets of an organization, while also playing an important part in fiscal management. Financial management is one of the most important aspects of business. To start up or even run a successful business, you will need excellent knowledge of financial management.
Here are some of the objectives involved:
• Providing legitimate and secure investment opportunities
• Ensuring shareholders of the organization get good returns on their investment
• Keeping the organization's funds in sufficient supply
• Optimum and efficient utilization of funds
Financial management is also made up of certain elements. These are some:
• Financial planning: This is the process of calculating the amount of capital that is required by an organization and then determining its allocation.
A financial plan includes certain key objectives which are:
o Framing of the organization’s financial policies and regulations
o Determining the capital organization and structure
o Determining the amount of capital required
o Financial control: This is one of the key activities in financial management. Its primary function is to determine whether an organization is meeting its goals. Financial control answers the following questions:
Financial decision-making: This includes the organization's investment and financing. This department makes decisions about how the organization should raise finances, whether they should sell new shares, or how the profit should be distributed.
Are the organizations’ assets secure?
Are the organizations’ assets being used competently?
Is management acting in the best financial interests of the organization and the key stakeholders?
The financial management department of any firm is handled by a financial manager. This department serves a variety of purposes, including:
• Figuring Out the Needed Capital:
The financial manager is responsible for figuring out how much money an organization needs. This depends on the policies of the firm with regard to expected expenses and profits. The amount required has to be estimated in such a way that the earning capability of the organization increases.
• Investing Capital:
Every organization or firm needs to invest money in order to raise more capital and gain regular returns. As a result, the financial manager must put the company's money into safe and profitable ventures.
• Financial control:
In addition to planning, organizing, and obtaining funds, the financial manager must also control and analyze the company's short- and long-term finances. Financial tools like financial forecasting, ratio analysis, risk management, and cost and profit control can be used to accomplish this.
• Profit Allocation:
Once the company has made a substantial net profit, the financial manager is responsible for effectively allocating it. This could involve keeping a part of the net profit for contingency, innovation, or expansion purposes, while another part of the profit can be used to provide dividends to the shareholders.
• Effective Management of Money:
This department is also responsible for effectively managing the firm’s money. Money is required for various purposes in the firm such as payment of salaries and bills, maintaining stock, meeting liabilities, and the purchase of any materials or equipment.
• Formation of Capital Structure:
Once the amount of capital the firm requires has been estimated, a capital structure needs to be formed. Short-term and long-term debt-equity analysis are part of this. This is contingent on the amount of capital that the business owns and the amount that must be raised from outside sources. Why is financial management important?
This form of management is important for various reasons such as:
• Assists organizations in the planning and acquisition of funds Helps in improving the profitability of organizations
• Helps organizations in effectively utilizing and allocating the funds received or acquired
• Aids businesses in making important financial decisions
• Contributes to financial planning
• Increases the overall value of firms or organizations
• Encourages employees to save money, which helps them in personal financial planning Provides economic stability
Financial management examples Example 1:
Suppose you decide to start your own business along with seven partners. You choose to rent a small office in New York, USA. You may ask the following questions:
• Should I opt for an independent office or a co-working space?
• What if I purchase the office building? What return on investment can I get from such a deal 15 years from now?
• What is the annual office rent in New York?
• Is New York best suited for my office location?
A financial manager and real estate specialist would be able to solve these issues with ease. They would provide you with the clarity you need to understand where your funds must go and what your business goals should look like for increased profitability.
Example 2: Assume you own a small bookstore and have received funding to expand your operations online. Given the new financial disposition, your new areas of interest would be:
• What is my financial strategy for doubling my current capital?
• What is my current proposition's market value, and how can I increase it?
• What kind of investments should I make in order to take the company online?
• Where do I see myself in the next five years as a business?
• How do I repay my business loans and meet the business goals to receive my next funding?
• What should I do to achieve my business goals?
A financial manager would answer all these questions and point you in the right direction in each case through their business and financial expertise.
Why study management of finances?
• Develop interpersonal skills:
Enrolling in a course in this area will give you the opportunity to improve your communication and teamwork abilities by fostering relationships with your coworkers.
• Higher compensation packages:
Entry-level and management-level employees in this industry typically receive excellent compensation. This is a highly skilled job role that is always in demand, even during recessions.
• Enhances personality:
Taking a class in this area will also help you develop your soft skills. People who wish to work in this sector should be excited to talk about finance for hours on end, showing that they’re passionate about their careers. They appear more approachable and knowledgeable in their field as a result.
• A wide range of career options:
Pursuing a degree in financial management opens the door to a wide range of career options. It could be in the private or public sector. Investment banking, entrepreneurship, financial analysis, managerial and financial accounting, and strategic financial management are among the career options. It is also beneficial for those people who are interested in starting their own business. Taking a course in financial management or getting a degree in finance can help people get better accounting jobs or promotions.
• Better job prospects:
The United States' Bureau of Labor Statistics (BLS) says that a "growing range of financial products and the need for in-depth knowledge of geographic regions" have increased demand for finance manager positions. This is further proven by the fact that the demand for careers in financial management has increased by 14%, careers in financial advising by 32%, and careers in financial analysis by 23%.
• Career growth:
There is always an opportunity to develop your professional skills and climb the career ladder. You can quickly acquire in-depth knowledge of financial management systems and financial management software once in this field. This is a great job for you if you have this knowledge and great aptitude skills. Scope of studying financial management
There are excellent career opportunities for those who take a finance-related management class or earn a finance degree. Some of the many different career options are as follows:
• Financial expert
• Financial advisor
• Financial analyst
• Corporate manager
• Investor relations associate or executive
• Financial auditor
• Personal financial planner
• Financial manager
• Budget analyst
• Credit analyst