What is Financial Management?
We need money to run business. Along with this, it is also very important to maintain cash flow in the business. Using funds effectively in business, is called by finance. Money is very important for business. Money is used to scale-up the business. The availability of raw material, distribution of goods, production and labor cost etc, is possible only because of money. Therefore we can say that all expenses are possible only because of money.
What is Financial Management ?
Under financial management, any institution whether it is private or government takes funds or money according to its need. It is used for running the business. This process of financial management includes planning, controlling, organizing directing and other financial activities. That fund is properly utilized for the operation and growth of the business.
STAGE
- First of all, expenses of the business are calculated. What is the financial requirement for the business. After that a plan is made to invest money. How will this fund be used or invested in business.
- Every effort is made to minimize the risk. So that the risk remains under control.
- Procurement of financial funds or assets of the organization.
- Properly managing the income sources of the enterprise. Their management should be in such a way that the enterprise can get maximum benefit.
- To make available sufficient funds for the operation of the enterprise.
OBJECTIVES
- If the objective of financial management of an organization is not clear. So the road ahead can be very difficult for that organization. First of all, any firm should clear the objective of its financial management.
Wealth Maximization
- When a company comes out with its IPO,The wealth of its founder is converted into shares. The market value of the share determines his/her wealth. It is the responsibility of all the employees of the financial department of an organization to increase the share price of their company. Such decisions have to be taken so that the wealth of their founder is even bigger.
- This theory is based on the concept of cash flow. Which is more important than profit. If the cash flow of your company has stopped then you have to face many problems. As you do not have money to buy raw material. There is no money to pay labor. There is no money to scale-up the business. If your customer, distributor or party is not paying money by taking goods from you. So it will hurt the company a lot in the long-term. This is known as credit sales.
- The price of the company’s share should legally increase. Not to increase them by operating illegally. The share price of the company must be increase on the basis of the growth of the company and its profit.
Profit Maximization
- This theory is based on the maximum profit of a business organization
- The aim of every businessman or business woman is to earn maximum profit. He does his financial management keeping this in mind so that he can get maximum returns.
- The distribution of an organization’s assets or the allocation of its resources determines how profitable it will be. How evenly are they spread out? The finance manager should do the same work so that the profit of his firm increases.
- He should take financial decisions like investment, financing and dividend very carefully. More work should be done on those investments and assets which are profitable which can give more profit to the company in the long-run.
- The financial manager should focus on the long run profit and the profit of the founder of the company should be a huge amount even after paying the tax.