Recognizing the importance of Financial management is critical for personal and business life. It involves the planning, implementation, and monitoring of financial resources to achieve financial goals and maximise wealth. Effective financial management skills can help individuals and businesses make the most of their resources, minimise risk, and achieve long-term financial stability. The scope of financial management covers a wide range of topics, including planning, budgeting, assessing risks, and monitoring performance.
Let us dive into the functions, scopes, and objectives of financial management.
What is Financial Management?
The managerial task of planning and controlling a company's financial resources is known as financial management. Acquiring, financing, and managing assets are required to accomplish a corporate firm's primary goal (i.e. maximising the shareholder’s value).
Functions of financial management
PlanningÂ
The first and foremost key to running any corporation is planning. Financial planning involves setting financial goals and determining the capital needed to achieve those goals. It includes preparing budgets and cash flow projections, as well as determining the best sources of financing.
Acquiring fundsÂ
The objectives of financial management entail obtaining the funds required to achieve an organization's financial goals. Issuing bonds or stocks, obtaining loans, or finding other sources of capital are a few examples of acquiring funds.
Investment decisionsÂ
Making investment decisions to maximise return while minimising risk is also one of the objectives of financial management. This might include purchasing stocks, bonds, real estate, or other assets.
Financial analysisÂ
Financial analysis is the process of assessing a company's financial performance. Analysing financial statements, comparing actual outcomes to budgeted results, and identifying areas for improvement are part of this process.
Risk managementÂ
The objectives of financial management also involve managing financial risk in order to minimise the impact of financial uncertainties on an organisation's financial performance. Risk management can be done using hedging strategies, insurance, and much more.
Reporting
Financial management involves preparing and presenting financial reports (balance sheets, income statements, and cash flow statements) to stakeholders, such as shareholders, creditors, and regulators.
Scope of financial management
Working capital management
It involves managing an organisation's day-to-day finances, including cash, accounts receivable, and accounts payable.
Financial forecasting
It entails making predictions about future financial performance based on past performance and other relevant parameters.
Financial forecasting is a complex process that requires a thorough understanding of the organisation's historical financial performance and an assessment of the current economic and market conditions. This process requires an understanding of what is financial management and also the use of statistical techniques and financial models.
International financial managementÂ
It involves making decisions about financial operations in international markets, including foreign currency exchange risk and the management of international investments.
Objectives of financial management
Profit maximisationÂ
It seeks to generate the highest level of profits possible, given the resources available to an organisation. Typically measured in terms of net income, it maximises the difference between an organisation's revenue and its expenses.Â
Wealth maximisation
The objectives of financial management also include increasing an organisation's total value, as measured by its market capitalization or asset value. In contrast to profit maximisation, which focuses on short-term profits, wealth maximisation considers the long-term impact of financial decisions on an organisation's value.Â
Liquidity management
It is a key component of financial management that involves ensuring that an organisation has enough cash and other liquid assets to meet its short-term obligations. It includes controlling the organisation's cash inflows and outflows and ensuring enough liquidity to pay operational expenditures and satisfy financial commitments when they become due.
Solvency management
The debt capital market can play an important role in ensuring the solvency of organisations by providing a source of long-term financing that can be used to meet obligations over the long term.
Asset management
The objectives of financial management encompass making decisions about the acquisition, use, and disposal of an organisation's assets to maximise their value.
Capital structure managementÂ
The debt capital market can be a valuable source of financing for organisations seeking to optimise their capital structure. By issuing debt securities, organisations can access a reliable source of long-term financing while also taking advantage of a lower cost of capital compared to equity financing.
Dividend policy
Dividend policy involves making decisions about the distribution of an organisation's profits amongst its shareholders in the form of dividends or share buybacks.
Conclusion
Are you ready to take your financial management skills to the next level and gain a competitive edge in the investment banking and capital markets industry? Look no further than the Executive Programme in Investment Banking and Capital Markets by Imarticus in collaboration with IIM Calcutta.Â
This investment banking and capital market course will equip you with the knowledge and skills required to succeed in this exciting field. You'll learn about what is financial management, the objectives of financial management, financial planning, investment decisions, risk management, and more. With a combination of expert instructors and cutting-edge course content, you'll gain a deep understanding of the importance of financial management and the finance industry and be ready to take on any challenge. So, why wait? Enrol in the programme today and start your journey to success!
