The significance of Financial management

The significance of Financial management

The most important aspect of a business is financial management. You should have a good knowledge about financial management if you wish to be successful in business. Financial management refers to strategic planning, directing, organizing and also controlling the financial undertakings of the business. The objectives of financial planning are:

  • Maintaining an adequate supply of the funds required for the running of the business
  • Making sure that the stakeholders of the organization get good returns for the money invested
  • Efficient and optimum utilization of funds
  • Creating safe and real investment opportunities for one to invest in

Understanding finance not only helps you with the business but also helps in managing other aspects like management of your personal finance, trading in the financial market and so on. Trading in the financial market helps you in earning a huge profit if done right. Go through this useful reference to understand about trading and how it can benefit you.

Functions of the department of financial management

This department is handled by the financial manager and it consists of various functions like:

Calculating the capital requirement– It is the responsibility of the financial manager to ascertain the capital requirement of the organization. It is depended on the firm’s policies with regard to the expected profits and expenses. The estimation of the amount required has to be done accordingly that the capability of the business to earn profit increases.

Formation of the capital structure- The capital structure has to be formed once the amount required is ascertained. It involves the analysis of debt and equity for both short-term and long-term.  It is also depended upon the amount of capital that is owned by the organization and the fund it needs to raise through other external sources.

Investment in the capital- Each and every organization should invest their money so that they can earn regular returns and raise more capital. The fund should be invested in profitable and safe ventures.

Allocation of profits- Whenever the business earns a good profit, it is the duty of the finance manager to allocate them efficiently. This involves keeping aside a part of the profit for innovation, expansion or contingency purpose while some part could be used to offer dividends to shareholders.

Financial control- Not only the financial manager has to plan, obtain or organize funds, but they also have to analyze and control the finances of the organization in long-term and short-term.  It is done bys using the tools like ratios analysis, risk management, etc.