Financial Management: Explained and Why It’s Important in Business

Finance

  • Author Edward Pratt
  • Published January 24, 2021
  • Word count 1,065

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. It is one of the most important responsibilities of owners and business managers. They must consider the potential consequences of their management decisions on profits, cash flow and on the financial condition of the company. Professional wants to be well-versed financially, so they enrolled on moving into higher education. PhDStudies.ae is the home for global academic studies that provide BA, MBA and PhD programs from partnered Universities. The activities of every aspect of a business have an impact on the company’s financial performance and must be evaluated and controlled by the business owner and accredited degree experts can assist them through online learning and distance education.

Scope / Elements

  1. Investment decisions includes investment in fixed assets (called as capital budgeting). Investments 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:

  4. Dividend for shareholders- Dividend and the rate of it has to be decided.

  5. Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.

During startup period, most companies experience losses and negative cash flows. Financial management is extremely important during this time. Managers must make sure that they have enough cash on hand to pay employees and suppliers even though they have more money going out than coming in during the early months of the business. This means the owner must make financial projections of these negative cash flows so he has some idea how much capital will be needed to fund the business until it becomes profitable. How online learning and distance education helps managers and even professional attain such programs that complete their higher education programs in accredited foreign Universities? PhDStudies.ae is where we help our students choose the right program until they successfully graduate.

Objectives of Financial Management

Financial management is generally concerned with procurement, allocation and control of financial resources of a concern. Objectives can be:

  1. To ensure regular and adequate supply of funds to the concern.

  2. To ensure adequate returns to the shareholders, this will depend upon the earning capacity, market price of the share, expectations of the shareholders.

  3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.

  4. To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.

  5. 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.

Every business is responsible for providing reports of its operations. Business managers need other types of reports, with key performance indicators, which measure the activities of different parts of their businesses. PhDStudies.ae offered tailored program which are perfect for working people. Financial management is an important skill of every small business owner or manager. Every decision that an owner makes has a financial impact on the company, and he has to make these decisions within the total context of the company’s operations.

Online learning and distance education is the best way accredited degree experts helps, even though economies have a long-term history of going up, occasionally they will also experience sharp declines.

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 programs 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 has 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-

  4. Issue of shares and debentures

  5. Loans to be taken from banks and financial institutions

  6. 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.

  1. 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.

  2. Disposal of surplus: The net profits decisions have to be made by the finance manager. This can be done in two ways:

  3. Dividend declaration – It includes identifying the rate of dividends and other benefits like bonus.

  4. Retained profits – The volume has to be decided which will depend upon expansion, innovational, diversification plans of the company.

  5. 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, maintenance of enough stock, purchase of raw materials, etc.

  6. 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.

As a business grows and matures, it will need more cash to finance its growth. Planning and budgeting for these financial needs is crucial. Deciding whether to fund expansion internally or borrow from outside lenders is a decision made by financial managers. There are programs offered by experts through online learning and distance education that PhDStudies.ae promise to deliver.

Are you into business or professional interested in learning more about handling one of the most important responsibilities of owners and business managers? Reach PhDStudies.ae or take online learning and distance education wherein they are expert in providing supplemental help to students who register to the represented Universities.

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