Meaning of Finance Management
Financial Management means applying management principles to manage the financial resources of an organization. It simply involves planning, organizing, directing and controlling financial operations to manage the finance of an organization efficiently. Financial Management is a methodology that business implements to monitor and govern its revenue, expenses and assets in order to maximize profitability and ensure sustainability.
Features of Financial Management
Determines financial Needs
Financial management estimates the adequate amount of funds required by the business for its functioning. It determines both short-term as well as long-term financial requirements of business and accordingly prepares a financial plan.
Designs capital structure
Financial managers take all decisions regarding the capital structure. They are responsible for deciding the optimum proportion of equity and debt in the capital of business. Proper balance between debt and equity should be attained which minimizes the overall cost of capital.
Select finance source
Financial management chooses the appropriate sources for the acquisition of required funds. Financial managers properly analyze all available sources and choose one which provides funds at low cost and have fewer conditions attached to them. The different sources available for raising fund are shares, debentures, loan, public deposits etc.
Chooses the investment pattern
Investing the fund among right assets is a must for earning the estimated profits. Financial management properly analyses an investment proposal regarding its safety, profitability and liquidity. Before investing any amount in it all risk and return associated with it should be properly evaluated.
Sets Dividend policy
Financial management sets the optimum dividend policy for organization. The finance manager should decide how much amount to be distributed as dividend and how much to be retained for ploughing it back into the business. He should consider all expansion and growth opportunities available to the organization and should avail them by retaining a proper amount of profit.
Manages working capital
Financial management aims at always maintaining an accurate amount of working capital in business. Working capital is such amount of capital which is invested in short-term assets like inventories, receivable, cash etc. for meeting day to day expenses.
Characteristics of Financial Management
Manages financial resources
Management of all financial resources is primary role of financial management. It monitors all funds and ensures that appropriate amount of funds is always available in the business. Financial management is responsible for determining the financial needs and acquiring all required funds timely.
Properly utilizes all funds
Fuller utilization of all funds is one of the important motives of financial management. Financial managers supervise the application of all funds and ensure that they are used efficiently and generate proper revenue.
Financial management is a never ending process to be followed by every business organization. It continues as long as the business operates throughout its life.
Lower the risk
Financial management aims at lowering risk by maintaining a proper balance between profitability and risk. All the funds are allocated by financial managers wisely by properly analyzing the available investment proposals. They evaluate safety, liquidity, profitability and risk associated with investment proposal before investing any amount in it.
Facilitates cost control
Controlling the cost is must for earning the expected profit and attaining targeted growth. Financial management implies various financial control techniques to keep the organization cost within the limits. They prepare budget for all activities of business and ensure that all expenses go in accordance with the pre-determined budget. Financial managers take all remedial measures if the cost is found to be more than pre allotted budget.
Helps in profit maximization
Financial management aims at raising the profit of the business by increasing its efficiency. Finance Manager supervises and manages all the finances of the business and ensure whether all funds are efficiently used or not. They focus on reducing the cost of operation and avoiding the wastage of any resources.