Financial Management has wide scope. It has globally proved its significance. In India it has not much importance in the later decades. But in this rapid developing era, it has got its part in India. It has out grown its importance not only in the big industries but in the traditional thought of India society.
There was a time when parents wanted their child to take medical or engineering as profession but now they themselves are sending them in the field of the management. This change itself how management have changed it significance. In this article, Financial Management will be discussed in detail.
What is Financial Management?
The wordy meaning of finance management is management of finance. This involves the planning application, organizing, directing and monitoring of economic activities in a company or an organization. Basically it means the management of finance in any firm.
Functions of Financial Management
- Planning: this involves a strategic map made for the execution of future target. To fulfill these target one requires to make all the necessary steps, decision on papers. So, to achieve the objective of the company planning is done.
- Organizing(or staffing): this involves the management and organization of the human resources as well as the non-human resources (finance). This is one of the most important function in Financial Management.
- Coordinating: this involves the implantation of the planning of the objectives by making the human and the non-human resources (finance) coordinated.
- Commanding(or leading): this involves the in taking of the necessary decision and the instruction at required situations.
- Controlling: this function involves the checking of the work going on regularly for the fulfillment of the objective of the organization.
Scope / Elements
In this section scope and element of Financial Management will be discussed.
- Investment decisions:
- This includes decisions in cases of investment in current and fixed assets.
- The investment in fixed assets are called as capital budgeting.
- Investment made in current assets are called working capital decisions.
- Financial decisions:
- These are decision made to raise finance.
- The finance can be raised from different sources period of financing, cost of financing and the returns thereby.
The finance manager concerns is the net profit distribution for Financial Management. He has to take decisions in regards to it. Net profits are divided into two:
- Dividend for shareholders- Dividend and the rate of it has to be decided.
- Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.
Functions of Financial Management
- Estimation Of Capital Requirements:
- A manager of Finance has to make estimation of capital requirements.
- This estimation depends on the expected costs and gains, future target and policies.
- The estimation should be done in such a way that it increases the earning capacity of the firm.
- Determination of Capital Composition:
- After estimation of the capital requirement, the structure of the capital is determined.
- This includes short and long term equity analysis.
- The structure capital depends upon the equity capital possess by a company and its additional funds. It is an significant purpose in Financial Management.
- Choice Of Sources Of Funds:
A company needs extra funds too. It has various option to raise additional funds. Some of them are mentioned below:
- Issue of shares and debentures
- Loans to be taken from banks and financial institutions
- Public deposits to be drawn like in form of bonds.
- Choice of factor will depend on relative merits and demerits of each source and period of financing.
- Investment of Funds:
- The work of finance manager is also to assign fund in beneficial projects to revenue have safety in investment and to have a continual revenue. It is also a significant function of Financial Management.
- Disposal of Surplus:
We know that The Finance Manage rheas to make the net profits decision. We are here describing two ways of doing it.
- Dividend declaration – This includes
- Identification of rate of dividends
- Identification of other benefits like bonus.
- Retained profits – The volume must be chosen which will rely on growth, advancement, expansion, designs of the organization.
- Management of Cash:
Finance manager needs to settle on choices concerning money administration. Money is required for different purpose like payment to creditors, meeting current liabilities, installment of wages and pay rates, payment of power and water charges, upkeep of enough stock, buy of crude materials, and so forth. This one of most important function of Financial Management.
- Financial Controls:
The work of finance manager is not only to just plan, attain and use the funds, but he has to put a control over the expenses. This can be through following processes:
- ratio analysis
- financial forecasting cost
- and profit control