Introduction to Financial Management

Financial Management means the collection of finance for an organization at a low cost and using it for incurring maximum profits. It is a process where one needs to plan and control the company’s finance for achieving its planned objectives.

Definition        

Howard and Apon have defined financial management as the process of planning and controlling functions to finance the company’s function.

Joseph and Massie have defined financial management as the company’s operational activity for efficient utilization of the funds which is essential for smooth operations.

Financial Management: Characteristics

The characteristics of financial management are as follows-

1. Financial management of a company is administered centrally.
2. It involves co-ordination between various business processes
3. Financial management is efficient in maintaining the balance between the risk and profitability in a business.
4. It is an analytical process with authentication.
5. It is the basis of managerial decisions of a company.
6. It maintains an important position in the organizational structure of the company.
7. An important determinant of a company’s future cash requirements.

Objectives of Financial Management

1. The primary objective of financial management is maximization of profits.
2. Through maintenance of proper cash flow the company aims for long term success
3. Creating goodwill for better reputation of the company is a chief objective.
4. It increases efficiency among all departments of the company.
5. By borrowing money at a low rate, it reduces the cost capital.
6. Creation of reserves is a major objective of financial management for growth and expansion.
7. Assessing financial needs of a company is a major aim.
8. Ensuring fair returns of wealth to shareholders.
9. Using internal resources for company’s expansion is a chief purpose.
10. Acquisitions and mergers prove to be a major aspiration.

Why is it important?

No matter how small or large a business organization is, adequate finance is a must. It is only it manages capital sufficiently can it aim for expansion and survival in the business.

Importance of financial management are-

• Minimizes the risk factor of the company.
• Helps in effective profit planning.
• A major determinant of success in business.
• Makes capital budgeting, an easy approach.
• An effective way for obtaining co-operation in business activities.
• Guides shareholders and other investors for wealth maximization.
• Helps in the estimation of total capital required.
• It controls inventories.
• It helps in utilizing resources efficiently.
• Boosts the profit maximization of the company.
• Helps to set clear long-term goals.

Links of Previous Main Topic:-

• Introduction to accounting and branches of accounting
• Preparation of final accounts
• Introduction of fund flow statement
• Introduction cash flow statement
• Ratio analysis significance of ratio analysis
• Fixed assets and depreciation meaning causes objectives methods and basic factor
• Cost accounting concept objectives advantages limitations general principles and cost sheet
• Job costing
• Introduction process costing
• Activity based costing introduction concept and classification
• Introduction inventory pricing and valuation
• Standard costing introduction
• Management accounting
• Marginal costing
• Relevant cost for decision making
• Budget and budgetary control
• Limitations of historical accounting
• Introduction to responsibility accounting

Links of Next Finance Topics:-

• Functions of the financial management
• Test question financial management