An Introduction to Financial Management
Financial management is a relative concept that refers to planning, organizing, directing, and controlling the financial activities like procurement and utilization of funds of the enterprise. It means applying general management principles to the financial resources of the organization.
The basics of financial management include managing the routine-wise operations by keeping them in the budget of business in lieu of the long-term investments in equipment, in addition to obtaining the financial support for all your operations.
If you are a working-class professionals aspiring to advance in the field of finance, an advanced financial management course can help you learn all advanced modelling techniques used in finance. The ultimate goal of any business is to maximize the wealth of its shareholders and stakeholders, that can be achieved through the following 5 activities of financial management:
Estimation of Capital Requirements
A finance manager has to make the estimation with regards to capital requirements of the organization. The capital requirement depends upon various factors like unexpected costs, profits, future programmes, policies of concern, etc. Estimations have to be made in an adequate manner that increases the earning capacity of the organization.
Determination of Capital Composition
Once the estimation has been determined, the capital structure has to be decided. This involves determining the short-term and long-term debt-equity analysis. This depends on the proportion of equity capital a company possesses and the additional funds required to be raised from third parties.
Procurement and Investment of Funds
For additional funds to be procured, the organization has many options like the issue of share and debentures, loans can be taken from various banks and financial institutions, or public deposits can be drawn in form of bonds. Choice of the source depends on the relative pros and cons of each source and the period of financing. The finance manager also has to decide how much and where to allocate the funds to gain the maximum yield out of the investment.
Disposal of Surplus
The net profits decision has to be made by every finance manager. This can be taken in two ways:-
- Dividend Declaration:- This includes identifying the rate of dividends and other benefits like bonuses to the distribution of the surplus.
- Retained Profits:- The volume of profits to be retained in the company has to be decided. This depends upon the long-term expansion, innovational, diversification plans of the company.
Management of Cash
The finance manager finally has to make decisions with regards to cash management. Cash is required for many purposes like payment of electricity and water bills, payment of wages and salaries, purchase of equipment and assets, payment to creditors, meeting current liabilities, purchase of raw material, etc.
The finance manager not only has to plan, procure, and utilize the funds, but he/she also has to exercise control over those finances. If you want to get more insight into the scope of financial management activities, you can consider applying for financial management online certification to dig deeper into this domain. An advanced financial management course can help you learn the latest concepts and modelling techniques used in finance to determine how to gain control over the finances of an organization like ratio analysis, financial forecasting, cost and profit control, etc.