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 procure the funds and efficiently use 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 identifying 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 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.
The Digital India campaign has been quite the buzz for a while now. Thanks to demonetization last year, there has been a drastic upward trend in digitizing financial transactions and going cashless altogether.
Emerging digital technologies are redefining Finance. It is all about expanding services to customers and potential new revenue streams to providers. The demonetization drive may have been a painful few months, but the initiative has opened up avenues for growth in Digital Finance. Paytm’s claim-to-fame is proof that opportunities are surging in the Digital Finance domain.
We are certain that Digital Finance is a sunshine sector today. Here are three major factors that are driving the growth of a digital economy:
A growing pool of digitally evolved consumers
India today is the second largest online market in the world, behind China, with over 348 million internet users. Last year, despite the large base of internet users, only 26% of our country’s population accessed the internet. The good news is that internet penetration is rapidly growing and we are forecasted to reach an internet user base of 555.3 million. The trend has been that Indians are turning to mobile internet. A report by the Internet and Mobile Association of India stated that in 2015, about two-thirds of internet users accessed the internet through their mobile devices. The growth forecast of the internet user base proves the huge potential for trade & commerce.
Many private players have started offering mobile payments, shopping, peer-to-peer and bill payment options – including banks, e-commerce businesses and individual online/mobile wallets. Some of the most popular players are Paytm, Airtel, FreeCharge and Mobikwik. Following the demonetisation drive, these companies partnered with retailers both big and small to enter the market due to the demand for digital cash.
GOI & RBI promoting financial inclusion through digital payments and payment banks
In 2014, 11 companies were issued licences by the Reserve Bank of India to operate as payment banks. These payment banks are meant to aid the rural unbanked population with basic banking benefits via mobile phones. This is a first-of-its-kind public-private partnership designed to encourage consumers and small merchants/ shopkeepers to come together on a digital platform.
Adding to these are efforts of the Government of India to help consumers adapt to mobile banking and commerce in the coming years. Prime Minister Narendra Modi has been promoting digital payments for a cashless economy through Bharat Interface for Money (BHIM) app based on United Payments Interface (UPI).
Further to this, the McKinsey Global Institute report last year, estimated a boost in the GDP of all emerging economies, such as India, by as much as $3.7 trillion by 2025 due to Digital Finance.
If you are someone who wants to understand the dynamic landscape of the digital economy, sign up for Executive Certificate Program in Digital Finance by IIM Kashipur and build for yourself a fruitful career in the field of Digital Finance.