MSG Team's other articles

8873 Defined Benefit Pension Plans

Whenever a person from the baby boomer generation hears the term pension plan, they refer to defined benefit pension plans. Defined benefit pension plans were the predominant type of pension plan just a few decades ago. In the 1980s, defined benefit plans accounted for over 80% of all types of pension plans which were offered […]

9637 How Investment Bankers Help Promoters Retain Control?

Companies want to go public because it helps them raise cash, which can be used for further expansion. However, the promoters of these companies often do not want to go public since this would mean that their stakes would be diluted and that they would lose control over the company. A low promoter’s stake in […]

12250 Accounts Payable Turnover Ratio

Just like accounts receivable turnover ratio show the financing that the firm is providing to its buyers interest free, the accounts payable turnover ratio show the financing that the firm is able to receive from its vendors and suppliers free of cost. Since there are no interest charges involved and this is purely trade credit, […]

11636 The True Cost of Raising Funds

A startup is considered to be successful when it is able to raise money. The fact that a startup was able to convince potential investors to open their wallets is considered to be proof that the business model is stable. The fundraising aspect can be considered to be quite thrilling and even glamorous. However, it […]

12337 Anchoring Bias in Behavioural Finance

The average investor may be able to keep their thinking in check and save themselves from a lot of biases. However, they still might not be aware of or be able to manage some of the more advanced biases. The anchoring bias is one such bias. It affects the thinking of even the most sophisticated […]

Search with tags

  • No tags available.

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.

Scope/Elements of Financial Management

  1. 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.
  2. 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.
  3. Dividend decision- The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two:
    1. Dividend for shareholders- Dividend and the rate of it has to be decided.
    2. Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.
Financial Management

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-
    1. To ensure regular and adequate supply of funds to the concern.
    2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.
  1. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.
  2. To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.
  3. 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

  1. 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.
  2. 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.
  3. Choice of sources of funds: For additional funds to be procured, a company has many choices like-
    1. Issue of shares and debentures
    2. Loans to be taken from banks and financial institutions
    3. Public deposits to be drawn like in form of bonds.
    Choice of factor will depend on relative merits and demerits of each source and period of financing.
  4. 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.
  5. Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two ways:
    1. Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus.
    2. Retained profits - The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company.
  6. 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.
  7. 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.

How to really get a grip on the complexities of financial management and take your career to new heights? Our Financial Management course on Udemy is your one-stop education to grow into nothing less than an expert financial decision-maker in today’s relentless business scene.

You will find practical ways to action capital budgeting and investment decisions, cash flow management and financial controls. You’ll learn how to make informed decisions about capital structure, optimise fund use, manage dividend policies, and implement effective financial controls — all crucial skills demanded everywhere.

Whether you’re aspiring to be a manager in the field, an existing owner looking to strengthen your insight, or seeking to advance in corporate finance, this course provides the real-world expertise you need to confidently handle the financial reins of any organisation and drive sound long-term growth through tried-and-tested principles of financial management.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles

Capital Structure – Meaning and Factors Determining It

MSG Team

Capitalization in Finance

MSG Team