Financial Management is the management of monetary affairs of a company. It is the first and foremost duty of the financial manager of a company which is one of the most complex activities. He must be foresighted and wise enough. For a company or enterprise, the management is an important task without which a company cannot withstand the fast pacing competition in this global era. Management coordinates the working procedure of the firm and ensures that every single individual in the firm works efficiently and effectively. Managing the financial affairs of a firm is no doubt the backbone of a firm’s establishment.
In a layman’s words when we apply the basic management principles in the financial resources of a company, it is referred to as Financial Management.
Financial management is mere organizing, planning, directing and controlling the financial activities in such a way so as to achieve the desired results. Investment decisions include Capital Budgeting.
- The word ‘management’ itself states, managing the resources etc. This management is inevitable, as it ensures the adequate supply of resources required in the company.
- An entrepreneur is required to be aware of the investments he makes. Financial Management helps to ensure the safety of investments.
- An equilibrium must remain between the debt and equity; capital to achieve their equilibrium, a strong capital structure must be established. Financial Management is required for this establishment.
- Further, the financial management ensures optimum and sustainable utilization of the resources as the resources can be scarce or in abundance.
- Providing the shareholders, the expected return is an essential task without paying shareholder their return, an enterprise cannot work soundly. Thus, Financial Management ensures this too.
Functions of the Financial Management
- Financial Controls.
- Cash Management.
- Surplus disbursement.
- Investing funds.
- Allocating sources of funds.
- Determining the capital composition.
- The estimation of capital requirements.
An entrepreneur’s obligatory duty is to control the finance which can be exercised by the techniques like, cost and profit control, ratio analysis, financial forecasting etc.
MANAGEMENT OF CASH
Payment of wages and salaries, payment to creditors, liabilities, stocks, purchase of raw material. All of these require cash. Thus management of cash is required.
DISPOSAL OF SURPLUS
The surplus or net profit is to be distributed by the finance manager which can be done either by planning beforehand the volume of surplus to be disbursed or by identifying rate of dividends and bonuses etc.
INVESTMENTS OF FUNDS
Funds must be allocated wisely in such ventures where more returns possibilities are present. It ensures the safety of the enterprise and regular returns.
CHOICES OF SOURCES OF FUNDS
Funds can be procured from:
- Loans from banks or other financial institutions.
- Public deposits.
- The issue of shares and debentures.
DETERMINATION OF CAPITAL COMPOSITION
It includes short term and long term debt equity analysis upon which the capital structure is established.
ESTIMATION OF CAPITAL REQUIREMENTS
In order to increase earning capacity of the company, estimations are to be made accordingly.