Financial management involves planning, organizing, directing, and controlling the financial activities of an organization including procurement and utilization of the funds. It applies the general principles of management to the financial resources in order to maximize the financial gains of organizations.
Objectives of Financial Management
In order to effectively procuring the funds and efficiently using the same, financial managers need to determine certain objectives of financial management. Following are the essential objectives that support the entire financial process:-
- To maintain an adequate and consistent cash flow system.
- To ensure adequate returns to the shareholders depending upon the earning capacity, and the current market price of the share.
- To ascertain sufficient funds utilization.
- To ensure safety on investment.
- To plan a sound capital structure in order to maintain a balance between debt and equity capital.
Importance of Financial Management
A sound financial management system is crucial, primarily because it assists the business to make decisions that result in maximization of value. Following are the ways sound financial management enables organizations to obtain financial stability and growth:-
Helps Set Clear Goals
Financial management defines the goals of an organization in clear terms that help in assessing whether the decisions taken are in the best interest. It also directs the efforts of various functions within the businesses towards achieving a predetermined objective. This ensures there are no complications and all the departments are working productively to fulfil the same financial goal.
Efficient Use of Resources
Optimum utilization of financial resources is a significant part of financial management. The application of financial management allows managers to obtain answers to critical questions like which assets to acquire, when is the right time to buy the assets, whether the existing assets need to be replaced or upgraded.
Safeguard the Future
Advanced financial management helps organizations protect their funds in order to achieve future business objectives. Overspending on a project can have a significant impact on the operational efficiency of other projects and strong financial management works to avoid the same Financial managers identify the areas where funds are required and allocate them efficiently in order to ensure smooth functioning across various areas of an organization.
The Role of Financial Managers
A financial manager is an individual who takes care of all the critical financial functions of a company. Financial managers are responsible for ensuring that the funds are utilized in an efficient manner. Their actions directly impact the profitability, growth and goodwill of an organization. Following are the essential functions of a financial manager:-
- Raising funds
- Allocation of funds
- Profit planning
- Understanding capital markets
To become a financial manager, one must hold a bachelors and masters degree in the field of finance, business administration or accounting. Enrolling in specialized advanced finance management courses further allows individuals to expand their knowledge base and boost career opportunities in the financial landscape.
Advanced financial management helps an organization to properly utilize the available resources and obtain financial stability and growth. Eventually, stronger the financial management, greater are the opportunities to raise finance at a lower cost, maximize profit in the short term and expand capital value in the long term.