Financial Management - Meaning, Objectives and Functions
Meaning of Financial Management
Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.
- Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.
- Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.
- Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two:
- Dividend for shareholders- Dividend and the rate of it has to be decided.
- Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.
Objectives of Financial Management
The financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be-
- To ensure regular and adequate supply of funds to the concern.
- To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.
- To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.
- To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.
- To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.
Functions of Financial Management
- Estimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future programmes and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise.
- Determination of capital composition: Once the estimation have been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties.
- Choice of sources of funds: For additional funds to be procured, a company has many choices like-
Choice of factor will depend on relative merits and demerits of each source and period of financing.
- Issue of shares and debentures
- Loans to be taken from banks and financial institutions
- Public deposits to be drawn like in form of bonds.
- Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible.
- Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two ways:
- Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus.
- Retained profits - The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company.
- Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintainance of enough stock, purchase of raw materials, etc.
- Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.
Learn about Financial Management with the help of easy to understand, richly illustrated Powerpoint Presentation of 184 Slides.
There are ample of presentations which are available FREE of cost, but they do not satisfy the audience. Our team which consists of Subject Matter Experts, Instructional Designers and Graphic Designers have collaborated their ideas and thoughts to prepare effective trainings in form of powerpoint presentations.
(View Demo Below)
Download Demo Powerpoint Presentation for FREE! You Will Love It
Get Instant Access to Complete Powerpoint Presentations on 150 Topics
Management Study Guide (MSG) is an educational portal launched with the vision of providing students and corporate workforces worldwide with access to rich, easy to understand, frequently updated instruction on many management related topics.
MSG team comprises experienced faculty and professionals who develop the content for the portal. We collectively refer to our team as - MSG Experts. To Know more, click on About Us.
Learn management concepts & Skills rapidly with easy to understand, richly illustrated learning modules
- Optimum lively Graphics and Animation to make the concept easy to understand
- Enter Your Email Id & Download 9 FREE Powerpoint Presentations Now!