Financial management is a branch of management that specifies planning all the financial activities. The deals with all activities deliver to finance like equalization of funds, utilization of funds, managing the financial resources, etc.
Scope and Objectives of Financial Management
Financial management has a broad scope that involves different kinds of decisions. The scope of financial management is discussed below:
These are the decisions related to equalization of funds, utilization of those funds, forecasting the returns based on the investment, etc.
The name itself specifies that the decisions related to the investment. Whether it is fixed assets, working capital, investment, etc. Also, during the time of expansion of a form, the liquid assets and fixed assets will be considered as these investment decisions.
These are the decisions related to the sharing activity of obtained profit. The sharing will be done in two ways. One is profit for shared holders, and the other is retained profits.
Discuss the Objectives of Financial Management?
The objectives are nothing but the goals of financial management for which we are making different kinds of decisions. This means objectives are the final aims of a particular organization or form or even a single project. So, in addition to the meaning and scope of financial management, it is also important to explain the objectives of financial management. They are as follows:
It is the primary objective of financial management. Every business organization should reach its peak position only with the help of well-structured financial management. So it is essential to make sure that all the availability of funds and also plan for the equalization of funds from variable resources.
It is also the main objective of financial management. It is to utilize all the capital in a structured way to its maximum extent. It means a single penny should not be wasted and also should not be misused or left. We should be able to balance both the equity and the capital in a proper way.
We all know that every organization's final motto is to earn a profit. Earning more profit is not only increasing sales and production. It also happens due to the reduction in cost and capital. So the Financial Manager should ultimately utilize all the funds.
It is another basic objective of financial management, which focuses on providing proper security to the available funds. Acquiring huge funds is not only a big task. Ultimate utilization and providing proper safety and security to those funds is also such an important duty and objective of the Financial Manager.
Financial management also helps to maintain proper records of every transaction of an organization related to monetary terms. It is one of the provisions to maintain security for the available funds and optimum utilization of funds.
Another critical objective of financial management is to provide proper financial information to the higher authorities as well as to the clients and lenders. Also, the Financial Manager should have a right plan with him regarding the funds, whether it is equalization or utilization or whatever it is.
These are the various goals and objectives of financial management. As it has a broad scope, the objectives also keep on increasing day by day according to the changes.
Functions of Financial Management
Based on the objectives and scope of financial management, the functions can be designed and derived. Because without knowing the purpose, we can't do an action right. Similarly, functions are the duties done by Financial personnel. Some of those functions are,
Controlling all the financial decisions.
Acquisition of funds from the available resources.
Managing liquid cash and cash-related activities.
Maintaining proper records for all transactions.
Designing security measures to protect financial resources.
Overview Of Financial Management
Financial Management is the planning, directing, and utilizing the financial activities of an organization. It means applying the general management principles in the financial aspect of the enterprises.
Invest decisions include investment in fixed assets known as capital budgeting and investment in current assets which is known as the working capital investments.
Financial decisions include the raising of finances from several sources which will depend on investment decisions, cost of financing, period of financing, and returns
Decisions on dividends are taken by the financial manager and they are of two types.
Dividends for shareholders where the dividend and the rate of dividend have to be decided.
Retained profits and the amount has to be finalized which depends on the plans of expansion of the enterprises.
There are several objectives of financial management.
One of the objectives of financial management is to ensure a regular supply of funds to the resources of concern.
It also entails making sure that the shareholders are paid out adequately and on time which will be dependable on the earnings of the enterprise, the expectation of shareholders, and the market price of the shares.
It ensures optimum utilization of funds at the least cost.
It is responsible for a safe investment that involves the least risk of loss.
It also ensures to plan the adequate capital structure of the enterprise where debt and equity capital are in perfect balance with each other.
There are several functions of Financial management.
Estimation of capital requirement is one of the functions of financial management which will depend on expected costs and profits and future programs that will require funds. It increases the earning capacity of the enterprises.
A short-term and long-term debt analysis is required to understand the capital structure and determine the capital composition of the enterprise. It must contain equity funds of the company as well as funds raised by outside sources as well.
The choice of sources of the funds has to be determined. Choices such as issues of shares and debentures have to be finalized along with the loans that are to be taken from the bank and public deposits that are to be drawn in the form of bonds.
Investment of funds has to be decided by the financial manager for the purpose of allocation of funds into promising ventures with adequate returns.
Disposal of surplus has to be determined by the financial manager in two ways namely, declaration of dividends and retained profits.
Management of cash is one of the major functions of financial management as cash is required for many purposes like paying wages and salaries, payment of bills and meeting current liabilities, maintenance of enough stock and payment to the creditors or purchase of raw materials, etc.
The financial manager not only procures and utilizes funds, it also has a right to exercise control over the financial resources and decisions which can be done by ratio analysis, cost and profit control, etc.
Quick Tips To Understand This Chapter
Financial management has to be understood closely in order to understand its operations and functions of it.
Study online to understand the concepts and functions of financial management. Online classes are also available on Vedantu’s official website which will surely help any student who is stuck in understanding financial management.
Clear doubts if there are any. Financial management is an easy subject when understood properly so a student must read the textbook and clear doubts later on.
Solve practice papers to stay in touch with the chapter. Vedantu offers practice papers that can be downloaded from the official website.
Refer to the notes for a better understanding. Students can also check the notes along with the textbooks to understand financial management for in-depth knowledge regarding the chapter.
Lastly, students pay closer attention in the classes, financial management can be a vast chapter to memorize with all the points on its functions and objects so a student must be willing to be attentive during the classes.
Making notes is one of the best ways to understand the chapter. Instead of simply relying on the PDF notes that are available on Vedantu’s website, students must make their own notes in order to reflect on the knowledge later before the exams.
Revising financial management is also the best way to master this topic. Students should be able to answer all the points mentioned in this chapter. So revise as much as possible.
Hence we understood financial management and its objectives. So it is an organized way of maintaining, planning, and forecasting all financial decisions. It involves various objectives and functions. All together strive for the only ultimate goal, which is nothing but organizational growth.