Financial Management Meaning Scope and Objectives & Function

 Financial Management Meanings Scope and Objectives.

Financial management is strategic planning, organizing, directing, and controlling of financial undertakings in an organisation or an institute. It also includes applying management principles to the financial assets of an organisation, while also playing an important part in fiscal management.

Importance of Financial Management. 

The financial management of an organization determines the objectives, formulates the policies, lays out the procedures, implements the programmes, and allocates the budgets related to all financial activities of a business. Through a streamlined financial management practice, it is possible to ensure that there are sufficient funds available for the company at any stage of its operations. The importance of financial management can be assessed by taking a look at its core mandate:

Availability of sufficient funds. 

Maintaining a balance between income and expenses to ensure financial stability. 

Creating and executing business growth and expansion plans. 

Safeguarding the organization against market uncertainties through ensuring buffer funds. 

Let’s take a deeper look at the scope of financial management to gain a greater understanding of its importance.

Why Study Financial Management.

Diverse career opportunities: Studying financial management opens up a lot of diverse career opportunities. It could be in the private or public sector. Some of the career options include investment banking, entrepreneurship, financial analysis, financial and managerial accounting, and strategic financial management. It is also beneficial for those people who are interested in starting their own business. Doing a financial management course or obtaining a finance degree can help people get promotions or better accounting jobs.

Improve interpersonal skills: Doing a course in this field will allow you to build better communication and teamwork skills through developing relationships with your colleagues. 

Builds personality: Doing a course in this field also helps in improving your soft skills. This is because people who wish to work in this sector must be extroverts, and should be able to talk about finance for hours altogether. This helps in improving their personality, knowledge, and communication.

Greater job prospects: According the USA’s Bureau of Labour Statistics (BLS), there has been a spike in demand for finance manager jobs in US due to a “growing range of financial products and the need for in-depth knowledge of geographic regions”. This is further proven by the fact that the demand for careers in financial management has increased by 14%, careers in financial advising by 32%, and careers in financial analysis by 23%.

Higher salary packages: People working in this sector are usually paid very well, whether it is at the entry level or at the management level. Additionally, this is a highly skilled job role that is always in demand, even during recessions.

Career growth: There is always an opportunity to develop your professional skills and climb the career ladder. You can quickly acquire in-depth knowledge of financial management systems and financial management software once in this field. If you possess this knowledge and great aptitude skills, this field is perfect for you.

Scope Of Financial Management.

Here we discussed Following basic points which are given below.

Investment Decision:

The investment decision involves the evaluation of risk, measurement of cost of capital and estimation of expected benefits from a project. Capital budgeting and liquidity are the two major components of investment decision. Capital budgeting is concerned with the allocation of capital and commitment of funds in permanent assets which would yield earnings in future.

ADVERTISEMENTS:

Capital budgeting also involves decisions with respect to replacement and renovation of old assets. The finance manager must maintain an appropriate balance between fixed and current assets in order to maximise profitability and to maintain desired liquidity in the firm.

Capital budgeting is a very important decision as it affects the long-term success and growth of a firm. At the same time it is a very difficult decision because it involves the estimation of costs and benefits which are uncertain and unknown.

Financing Decision:

While the investment decision involves decision with respect to composition or mix of assets, financing decision is concerned with the financing mix or financial structure of the firm. The raising of funds requires decisions regarding the methods and sources of finance, relative proportion and choice between alternative sources, time of floatation of securities, etc. In order to meet its investment needs, a firm can raise funds from various sources.

ADVERTISEMENTS:

The finance manager must develop the best finance mix or optimum capital structure for the enterprise so as to maximise the long- term market price of the company’s shares. A proper balance between debt and equity is required so that the return to equity shareholders is high and their risk is low.

Use of debt or financial leverage effects both the return and risk to the equity shareholders. The market value per share is maximized when risk and return are properly matched. The finance department has also to decide the appropriate time to raise the funds and the method of issuing securities.

Dividend Decision:

In order to achieve the wealth maximization objective, an appropriate dividend policy must be developed. One aspect of dividend policy is to decide whether to distribute all the profits in the form of dividends or to distribute a part of the profits and retain the balance. While deciding the optimum dividend payout ratio (proportion of net profits to be paid out to shareholders).

The finance manager should consider the investment opportunities available to the firm, plans for expansion and growth, etc. Decisions must also be made with respect to dividend stability, form of dividends, i.e., cash dividends .

Working Capital Decision:

Working capital decision is related to the investment in current assets and current liabilities. Current assets include cash, receivables, inventory, short-term securities, etc. Current liabilities consist of creditors, bills payable, outstanding expenses, bank overdraft, etc. Current assets are those assets which are convertible into a cash within a year. Similarly, current liabilities are those liabilities, which are likely to mature for payment within an accounting year.

Keywords

Financial Management

Financial scope

Financial activities

Financial Function

Represented By SM Nd GM GROUP'S