Nature of financial management. Financial Management: Definition, Nature and Objectives 2022-10-16
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Financial management is the process of planning, organizing, and controlling the financial resources of an organization. It involves the development of financial strategies and policies, the implementation of financial plans, and the monitoring of financial performance.
The nature of financial management is multifaceted and complex, as it encompasses a wide range of activities and responsibilities. At its core, financial management involves the management of an organization's financial resources in a way that maximizes shareholder value and meets the organization's financial objectives. This includes the effective utilization of financial resources, the management of financial risks, and the optimization of financial performance.
One of the key responsibilities of financial management is the development of financial plans and budgets. This involves forecasting future financial needs and developing strategies to meet those needs. Financial managers must consider a wide range of factors when developing financial plans, including the organization's overall business strategy, market conditions, regulatory requirements, and the availability of financial resources.
Another important aspect of financial management is the management of financial risks. Financial managers must identify and assess the potential risks that may impact the organization's financial performance, and develop strategies to mitigate or manage those risks. This may include the use of financial instruments such as insurance or derivatives, as well as the development of contingency plans to address potential financial emergencies.
In addition to these core responsibilities, financial managers also play a key role in the monitoring and evaluation of financial performance. This involves the analysis of financial data, the identification of trends and patterns, and the development of recommendations for improvement. Financial managers must also communicate financial information to stakeholders such as shareholders, board members, and senior management, in order to ensure that financial decisions are aligned with the organization's overall goals and objectives.
Overall, the nature of financial management is complex and dynamic, requiring a deep understanding of financial concepts and principles, as well as the ability to adapt to changing market conditions and business needs. Financial managers play a critical role in the success of any organization, and their skills and expertise are essential for the effective management of financial resources.
Nature of Financial Management
While stockbrokers make stock market transactions on behalf of their clients, asset management companies determine the investment portfolios over longer periods and diversify client investments with an aim to mitigate risk and deliver superior ROI. Though, there could be little controversy over profit maximisation, as the basic objective of financial management — yet, in the modern times, several authorities on financial management criticise this objectives, on the following grounds: i Profit is a vague concept, in that; it is not clear whether profit means — short-run or long-run profits. What is Financial Management? In any case, however, the scope of authority of the finance manager is defined by the Top Management; in view of the role desired of him- depending on his financial expertise and the system of organizational functioning. ADVERTISEMENTS: Explanation: The gross present worth of a financial course of action is equal to the capitalized value of the flow of expected future benefits i. Good financial managers have to be well-versed with the capital market dynamics, and the risks associated. Portfolio Management — In the modern world of financial operations, a hybrid of commerce and science has emerged as portfolio management.
The profits a company makes determine its financial health and future growth. Accounting, again, provides data to the finance manager for better and improved financial decision making in future. Another way is to simply reduction of costs and optimizes income items. The finance manager, very often, is a highly responsible member of the Top Management Team. ADVERTISEMENTS: However, the scope of authority of the finance manager, very much depends on the policies of the top management; finance being a crucial management function. Explore Learning Options in Financial Management Today, we are living in a world where hybrid educational models combining online, as well as on-campus learning options, are available in all fields including financial management. Current assets include cash, inventories, receivables, short-term securities, etc.
Financial Management: Definition, Nature and Objectives
It must research into new and better sources of finances; and also into new and better channels for the investment of finances. In simple terms, financial management is the business function that deals with investing the available financial resources in a way that greater business success and return-on-investment ROI is achieved. Ensuring the optimum level of liquidity in an organization is one of the important scopes of financial management. A diploma in banking and finance or a financial risk management course would be an ideal value addition for job seekers in this segment. Dividend decisions include a proper dividend policy regarding the distribution or retaining of company profits. What might the coming 12 to 18 months bring for the business? There are various processes involved in this like developing certain standards for business in advance, comparing the actual cost or performance with pre-established standards, and taking all required remedial measures. In simple terms, financial management is the business function that deals with investing the available financial resources in a way that greater business success and return-on-investment ROI are achieved.
Investment banking requires a good understanding and a passion for financial markets and economic trends. Every organisation should properly analyse various source of funds shares, bonds, debentures etc. Accounting, again, provides data to the finance manager for better and improved financial decision making in future. According to modern financial experts, less profit with less risk are superior to more profits with more risk. Long back, in traditional times, the finance function was coupled, either with production or with marketing; without being assigned a separate status.
Financial Management Explained: Scope, Objectives and Importance
Brandley defines financial management as that area of business management devoted to judicious use of capital and carefully selecting the source of capital to enable a spending unit to move in the direction of reaching its goals. Nature of Financial Management: Nature of financial management could be spotlighted with reference to the following aspects of this discipline: i Financial management is a specialized branch of general management, in the present-day-times. ADVERTISEMENTS: For example, macro-economic guides financial management as to banking and financial institutions, capital market, monetary and fiscal policies to enable the finance manager decide about the best sources of finances, under the economic conditions, the economy is passing through. Risk Management With constantly changing market dynamics and other socioeconomic and political variations, risk management has become a crucial part of the financial sector operations. Emeritus is an internationally acclaimed career learning and development brand with over 2000 employees, and offices in Mumbai, New Delhi, Shanghai, Singapore, Palo Alto, Mexico City, New York, Boston, London, and Dubai. Emeritus is committed to teaching the most advanced and futuristic financial management skills to individuals, companies, and governments all over the world.
5 Nature and 7 Scope of Financial Management You Should Know
However, the first alternative i. The finance manager focuses on raising cheap funds from different sources and invest them in the most profitable avenues. Experienced Graphic Designer with a demonstrated history of working in the motion pictures and film industry. He performs a trinity of roles-that of a line officer over the Finance Department; a functional expert commanding subordinates throughout the enterprise in matters requiring financial discipline and a staff adviser, suggesting the best financial plans, policies and procedures to the Top Management. Every beginner must start a business or a company with financial knowledge and management strategies.
This intermingling nature of financial management calls for efforts in producing a coordinated financial system for the whole enterprise. Ensures liquidity Maintaining proper liquidity in an organization is another important role played by financial management. There different approaches involved like developing certain standards for business in advance, comparing the actual cost or performances with pre-established standards and taking all require remedial measures. To some extent, financial management is the responsibility of every functional manager. Where should capital funds be expended to support growth? Therefore, adequate usage of the money generated as profit is needed. There are various segments of financial planning such as wealth management, tax planning, retirement planning, investments etc. Using macro and micro economics concepts for financial management approach.
What is Financial Management? Its Nature and Scope
Moreover, management is more interested in immediate cash flows than the profits a large part of which might be hidden in credit sales- still to be realized. Scope of Financial Management Investment decision Financial management is involved in managing all investment decisions of an organization. Definition of Financial Management: Financial management could be defined as follows: Financial management, is that branch of general management, which has grown to provide specialized and efficient financial services to the whole enterprise; involving, in particular, the timely supplies of requisite finances and ensuring their most effective utilization-contributing to the most effective and efficient attainment of the common objectives of the enterprise. Likewise, the Advertising Manager thinking, in terms of launching an aggressive advertising programme, is too, considering a financial decision; and so on for other functional managers. However, one alternative gives more profits in earlier years; while the other one gives more profits in later years. The finance manager prepares the budget for all expenses and revenues for a particular period based on determining capital requirements.
These roles are best suited for people with college degrees in accounting and law. Select sources of Fund Choosing the source of funds is one of the crucial decisions for every organization. The various decisions concerned with investment in current assets and liabilities are covered in working capital decision-making. Objectives of Financial Management Certain specific and highly impactful objectives that financial managers aim to attain are: Assessing Capital Needs Financial managers need to evaluate factors such as cost of current and fixed assets, cost of marketing, need for buffer capital, long-term operation, human resources cost, etc. Nowadays, having technological expertise alongside an MBA degree can make a person highly employable in this arena. Financing decision Financing decisions involves deciding how the required funds should be raised from available long term or short term sources.
The factor implicit here, is the risk element associated with profits. Apart from securing their interests, financial managers are also expected to ensure greater ROI that generates more wealth for all shareholders. ADVERTISEMENTS: iv Another equally important financial service by financial management to the enterprise is to ensure the most effective utilisation of finances; but for which finance would become a liability rather than being an asset. There are various sources available for raising funds like shares, bonds, debentures, venture capital, financial institutions, retained earnings, owner investment, etc. What Is Financial Management? He performs a trinity of roles-that of a line officer over the Finance Department; a functional expert commanding subordinates throughout the enterprise in matters requiring financial discipline and a staff adviser, suggesting the best financial plans, policies and procedures to the Top Management. Young educated persons, aspiring for a career in management, undergo specialized courses in Financial Management, offered by universities, management institutes etc. Whether they have to be ploughed back to acquire assets and expand coverage, or to be spent on marketing, acquiring other businesses or invested to act as a buffer resource, all these considerations are made by financial leaders.