FINANCIAL MANAGEMENT

 

FINANCIAL MANAGEMENT

Financial management can be defined as the management of finances of an organization in order to achieve financial objectives of an organization.

The objectives can be wealth maximisation, profit maximisation, and others.

Knowledge in financial management has also a great influence in individual other than the entire organization. Awareness of managing finances can help individual plan, control, and make decisions on his/her finances to avoid misuse of the available resources.

I have carried out research on success in life. Individual to be successful in life must take into the consideration the role of financial management in his/her lifetime. This is the reason why many businesses are closing down due to failure to manage its finances.

ROLES OF FINANCIAL MANAGEMENT

1.    Financial Planning

The individual, financial managers will need to plan in order to ensure that enough funding available at the right time to meet the needs of an organization such as shorter, medium and longer capital needs.

In short-term, funds may be needed by the organization to purchase of inventory to meet the payable needs. Here, the financial manager is to ensure that working capital requirements are met.

Working capital is the difference between an organization’s current assets such as cash, customer’s unpaid bills and inventories of raw materials and finished goods –and its current liabilities such as debt, taxes, and accounts payable. Thus, it is the amount of capital required to meet working expenses.

 

 

 

There are different types of working capital such as regular working capital which will be discussed later in other areas in this course.

The value of working capital determines the state and ability of the business in running its daily operation. Therefore, the financial managers need to plan well to come up with the positive value of the working capital to meet the organization’s daily expenses such as salary and wages bills.

 

Financial manager contributes to the decision making of the firm on uses of funds by analysing the financial data to come with plans that the firm will use to meet its financial objectives.

On the other hand, individual who is planning for his/her own money for personal desires need to consider the scale of preference of his/her own wants in order to draw up the budget of goods and services needed based on the available funds. This will help him/her to avoid to wastage of money on impulse buying, acquiring goods of least preference while forgetting what is needed most.

 

2.    Financial control

Refer to the procedures, policies and means by which an organization monitors and controls the direction, allocation, and usage of its financial resources. Financial controls are at the very core of resource management and operational efficiency in any organization.

The control function for a financial manager becomes relevant for raised funds. He verifies whether the activities of the business are meeting its financial objectives through ensuring that assets are used efficiently and also comparing the data on actual performance with the one forecasted.

The forecasted data is usually prepared in light with actual data, and modified to reflect future changes in an organization such as effects of economic development.

The finance manager monitors cash flow, manages investments and expenses and negotiating financial terms of contracts in consideration to financial objective of the organization.

 

3.    Financial management decision

These decisions are of great importance for the organization’s financial well-being as they are pertaining to allocation of funds, procurement of funds, funds distribution and working capital.

The financial manager makes decision relating to investment, financing and dividends as well as management of risk. Managers take investment decisions regarding various securities, investments, and assets. They take financing decisions to ensure regular and continuous financing of the organization.