Financial Management – Meanings, Objectives, and Functions

The Meaning of Financial Management

Financial Management in the Management of financial resources. This includes Planning, organizing, managing, and controlling them. It is the application of general management principles to financial resources.

Scope/Elements

1. Capital budgeting is the investment of fixed assets as part of an investment decision. Working capital decisions also include investments in current assets.
2. Financial decisions – These are financial decisions that involve raising finance from different resources. They will depend on the type of source, the duration of financing, and the returns.
   1. Dividend decision – The finance manager must decide the distribution of net profits. Generally, net profits are divided into two parts: Dividends for shareholders – Dividends, and their rate must be determined.
   2. Retained profits – The amount of retained profits must be determined. This will depend on expansion and diversification plans.

Financial Management Objectives

Financial Management is the general area of control and procurement of financial resources for a concern. These objectives may include:

1. To ensure a regular and adequate supply to the concern.
2. To provide adequate returns for shareholders. This will depend on the earning potential, market price, and shareholders’ expectations.
3. To ensure optimum funds utilization. After funds have been obtained, they should be used in the most efficient way possible at the lowest cost.
4. Investment safety is achieved by investing in safe ventures that offer a high rate of return.
5. A sound capital structure is essential to ensure a fair and sound mix of capital. This will allow for a healthy balance between equity and debt capital.

Functions of Financial Management

1. Calculation of capital requirements: The finance manager must estimate the company’s capital requirements. It will be based on expected costs, profits, future programs and policies and other factors. It is important to make estimates to increase the enterprise’s earning potential.
2. Capital composition determination: After the estimate has been done, the capital structure must be determined. This includes both short-term and long-term debt-equity analysis. It will be determined by the company’s equity capital and any additional funds that need to be raised from external parties.
3. A variety of funding sources: Companies have many options for additional funds.
4. 1. Issue of shares or debentures
   2. Banks and financial institutions can provide loans.
   3. Public deposits can be drawn in the same way as bonds.
5. The relative merits of each funding source and the length of financing will determine which factor you choose.
6. Funds investment: Finance managers must decide whether to invest funds in profitable ventures to ensure that investors are safe and receive regular returns.
7. Recycle surplus Finance managers must make the net profit decision. There are two options:
8. 1. Dividend declaration includes identifying the dividend rate and other benefits, such as bonuses.
   2. Retained profits – The amount of profit that is retained depends on the company’s expansion, innovation, and diversification plans.
9. Cash management: The finance manager must make cash management decisions. Cash is needed for many purposes, including payment of wages, salaries, water bills and electricity bills. It can also be used to pay creditors and meet current liabilities.

Financial controls: Finance managers must not only plan, procure, and use the funds but also have control over finances. You can do this by using many methods such as ratio analysis, financial forecasting and cost and profit control. Financial Planning – Definitions, Objectives, and Importance

Definition of Financial Planning

1. Financial Planning is the process of estimating capital requirements and determining its competition. Financial Planning is defining financial policies that will govern procurement, investment, and administration of funds for an enterprise.

Objectives of Financial Planning

1. Financial Planning can help you achieve many goals.
2. Calculating capital requirements- This will be influenced by the cost of current assets and fixed assets, promotional costs and long-term Planning. Both short-term and long-term capital requirements must be considered.
3. Determining the capital structure- Capital structure refers to the capital composition, the ratio of capital required for a business. This includes the short-term and long term decisions regarding debt-equity ratios.
4. Framing financial policy regarding cash control, borrowings, lending, etc.
5. A finance manager makes sure that scarce financial resources are used most efficiently with the lowest cost to maximize investment returns.

Financial Planning is important.

1. Financial Planning is setting goals, policies, processes, programs, and budgets for financial activities. This helps to ensure that financial and investment policies are effective and appropriate. This is the importance of this:
   1. It is essential to ensure that adequate funds are available.
   2. Financial Planning helps maintain stability by ensuring a balance between inflow and outflow of funds.
   3. Financial Planning makes sure that funds suppliers can invest in companies that practice financial Planning.
   4. Financial Planning is essential for long-term survival.
   5. Financial Planning reduces uncertainty regarding market changes that can be easily faced with sufficient funds.
   6. Financial Planning helps to reduce uncertainties that can hinder a company’s growth. This is a way to ensure stability and profitability.