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Financial Management Vs Financial Risk Management

Financial Management Vs Financial Risk Management: Understanding the Differences

What is Financial Management?

Financial management entails the process of planning, organizing, directing, and controlling the financial activities of an organization. These include the procurement and utilization of funds for the enterprise. It means applying general management principles to the financial resources of the organization.

Financial management is a critical topic in business because companies cannot function without the proper use of funds. To understand and apply the right financial management practices in handling and use of funds, one has to have either a professional degree or online financial management certification.

The Objectives of Financial Management:

Profit Maximization
One of the main reasons an organization employs a financial manager is to maximize the profits whilst managing the finances of the company. The gain can be short-term or long-term. But, the main focus is the financial manager or department handling the financial issues of the organization must ensure that the organization in question is earning sufficient profit.

Proper Mobilization of Finance
The collection of funds required to run the business is also a critical part of financial management that the manager needs to handle appropriately. Once the finance manager concludes the estimation of the amount required for a business process, the required amount can then be procured from a legal source such as debenture, shares or even request for a bank loan. But, the point is that the balance between the money the firm has and the amount borrowed should be maintained.

What is Financial Risk Management?

Financial risk management is nothing but identifying the potential pitfalls called risks, prioritizing them, and finding appropriate solutions to mitigate or eradicate these risks. Of the various types of risk your organization might face, financial risk has the most immediate impact on your cash flow and the bottom line. You can anticipate these risks and head them off at the pass with the help of an online financial management certification.

The Objectives of Financial Risk Management:

● Identify Market Risk
Market risk is any risk concerned with the marketplace in which your business operates. Businesses that adapt to serve the online audience have a better chance of surviving than businesses who stick to the offline business models. Generally, every business runs the risk of being outpaced by competitors. If you don’t keep up with the latest consumer trends and pricing demands, then you are likely to lose the market share and thus result in lowering the profit ratio.

● Identify Credit Risk
Credit risk is the possibility that you are going to lose money because someone fails to perform according to the terms of a contract. For example, if you deliver certain goods or services to a customer on a 30-day payment term basis and the customer fails to make payment by the due date, then you have suffered a credit risk. Businesses must retain sufficient funds to cover their account payable or they are going to experience some serious cash flow problems.

Summing Up

If you are considering a career in either of the domains, you need an online financial management certification. An online financial management course that is specially designed for working-class professionals helps you gain in-depth knowledge and provides exposure to various financial models used to analyze and manage the various types of risk using popular and complex financial management tools.

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