Financial Management and its Importance

3005 APPLIED BUSINESS
FINANCE

TABLE OF CONTENTS
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
SECTION- 1...............................................................................................................................................3
Financial management and its importance...............................................................................................3
SECTION- 2...............................................................................................................................................3
Major financial statements.......................................................................................................................3
Use of ratios in financial management.....................................................................................................3
SECTION- 3...............................................................................................................................................3
SECTION- 4...............................................................................................................................................3
CONCLUSION..........................................................................................................................................3
REFERENCES..........................................................................................................................................3

INTRODUCTION
MAIN BODY
SECTION- 1
Financial management and its importance
Financial management is one of the significant functions that revolves around planning,
organizing, managing and controlling the financial resources in an organization. Since finance is
the life blood of business so it can be assessed that managing the finances is the crucial task for
the company which has to be fulfilled with ultimate care. The funds are required in the business
for planning growth and expansion activity, taking capital budgeting decision, meeting the
working capital requirements and improving the operational capacity of the business. The scope
of financial management is wide as it is concerned with several areas like acquisition of the
finances, proper utilization of these financial resources, managing its regular supply, maintaining
the liquidity and dividend decisions to satisfy the owners of the business (Holynskyy, 2017). All
these decisions are taken under the financial management and is to be ensured that such
decisions are taken with expertise. The acquisition of finances has to be done in an effective
manner where the sources of finance used maintains the proper balance in the capital structure,
minimizes the risk and maximizes the returns for the company and the cheapest sources must be
applied so that the costs of such acquisition can be controlled. In obtaining the funds the balance
must be managed in the debt and equity funds so that both dilution of ownership and the posing
of the fixed financial charges can be controlled. Post making the decision regarding the
acquisition the major task is with financing decisions which involve the investments that are to
be chosen in respect of allocating these financial resources (Brigham and Houston, 2021). The
investments that are providing the maximum returns must be undertaken and for evaluating these
proposals the investment appraisal techniques are being applied. The working capital decisions
are made for the maintenance of the smooth operating cycle in the business and to enhance
credibility with the better liquidity position of the company. Apart from that the dividend
decisions are also made by the company which states the percentage of returns available for the
equity shareholders that are distributed as dividends and the remaining of them that are to be
maintained as retained earnings.
The financial management function is very significant for the company in generating
performance and future growth prospects. If the financial resources of the company are properly
maintained in the business then the sustainability and the overall value is generated which makes
the business a more profitable venture. It ensures the cost of acquisition is minimized and
thereby the returns are maximized which can further contribute in the achievement of the
organizational objectives and the wealth maximization of the shareholders (Zietlow and et.al.,
2018). The overall efforts in a combined form assists in the financial stability, better liquidity,
credibility to build competitive advantage in the market.