Learning The Important Functions of Financial Management

Learning The Important Functions of Financial Management

Learning The Important Functions of Financial Management,Jan 11, 2024

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Jan 11, 2024

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Financial Management is the application of management principles that keep the finances managed. Financial Management is a managerial skill that plans, organizes, directs, and controls the enterprises’ activities that are related to finances. To learn how to deal with the ownership of funds and effective usage in business.

Rather, Financial management belongs to strategic planning, organizing, directing, and controlling the financial activities of an organization.


Objectives of Financial Management
Financial Management has several objectives with which it helps an organization grow. However, a few are mentioned below:

  • Financial Management helps businesses manage and maintain a enough supply of funds.
  • The application of financial management ensures that investors get good returns on their investments.
  • Financial Management ensures that businesses optimize and efficiently use the funds.
  • Financial Management helps businesses create safe and real investment opportunities.
     

Financial Management Comprimises

Certain elements that Financial Management is made up of:

  • Financial Planning: Financial Planning includes the calculation of the capital amount that is required by an organization and should also determine the allocation of that capital amount. It includes the following key objectives.
  • Determining the required capital amount.
  • Calculating the capital organization and structure
  • It helps in framing the financial policies and regulations of an organization.
  • Financial Control: It plays a crucial role in an organization by ensuring that the particular organization matches its very objectives. Financial control answers the following questions:
  • Are the assets of the organization skillful?
  • Are the organization’s assets secure?
  • Are the actions of management aligned with the organization's and key stakeholders' best financial interests
  • Financial decision-making: Financial decision-making involves the investment and financing decisions for the organization. The department ensures how the organization should utilize its finances.
     

Functions of Financial Management

  • Calculating the Capital Required: The financial manager is responsible for calculating the necessary funds for an organization, which is influenced by the organization’s policies on anticipated expenses and profits. It is crucial to estimate the required amount in a manner that enhances the organization's earning potential.
  • Formation of capital structure: After estimating the required capital of an organization, a capital structure must be established, which involves analyzing the debt-equity ratio in both the short and long term. This analysis is based on the existing capital of the organization and the amount that needs to be raised from external sources.
  • Investing Capital: to raise more capital every organization needs to invest more more money. Hence the manager of the concerned organization should invest the funds in safe and profitable ventures.
  • Allocation of Profits: After the organization gets a good amount of net profit, it is the duty of the financial manager to efficiently allocate the profit. The financial manager will keep a part of the net profit as a contingency fund, for innovation, or expansion purposes while the other part will be used to provide dividends to shareholders.
  • Effective Money Management: This department is responsible for managing the money of an organization efficiently. An Organization requires money for several purposes that include payment of salaries and bills, maintaining stocks, meeting responsibilities, and purchases of any material.
  • Financial Control: Financial Managers are not only responsible for planning, organizing, and obtaining funds, but they also ensure the control and analysis of the firm’s finances in the short and long term.
     

Why Financial Management is important for an Organization?

The key aspects of the importance of Financial Management are listed below:

  • Financial Management helps in financial planning.
  • It helps organizations in the planning and acquisition of funds.
  • Financial Management assists organizations to effectively utilize and allocate the received funds.
  • This assists organizations in making critical financial decisions.
  • Financial Management improves the profitability of organizations.
  • It increases the overall value of organizations.
  • Financial management provides economic stability.
     

Job Opportunities in Financial Management

  • Corporate manager
  • Investment banker
  • Financial Advisor
  • Financial analyst
  • Financial examiner
  • Financial manager
  • Personal financial planner
  • Budget analyst
  • Investor relations associate or executive
  • Credit analyst, and more.
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Frequently Asked Queries

A1. Financial control can be considered as one of the most important functions of Financial management. Financial management comprises a range of policies and guidelines implemented by organizations to effectively handle their financial resources. This includes establishing rules for documenting, reporting, and analyzing transactions. By making informed decisions about the allocation of financial resources, companies can enhance their operational efficiency and optimize production.
 

A2. Four fundamental elements of financial management include planning, controlling, organizing, directing, and decision-making.
 

 Corporate manager

  • Investment banker
  • Financial Advisor
  • Financial analyst
  • Financial examiner
  • Financial manager
  • Personal financial planner
  • Budget analyst
  • Investor relations associate or executive
  • Credit analyst, and more.
     

A4. The five primary principles of financial management are consistency, timeliness, thorough documentation, certification, and justification.
 

A5. Financial Management has several objectives with which it helps an organization grow. However, a few are mentioned below:

  • Financial Management helps businesses manage and maintain a enough supply of funds.
  • The application of financial management ensures that investors get good returns on their investments.
  • Financial Management ensures that businesses optimize and efficiently use the funds.
  • Financial Management helps businesses create safe and real investment opportunities.
     
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