Concept and Importance of Financial Management

This report analyzes the concept and importance of financial management in organizations. It also examines the role of financial managers and determines the key sources of finance.

Financial management

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Concept of financial management...............................................................................................1
Importance of financial management..........................................................................................1
Examining the role of the financial manager in organization.....................................................2
Determining the key sources of finance......................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
The management within the organization is useful in effectively planning, organizing,
controlling and also monitoring the key relevant business activities in a smooth way. This is
useful in coordinating various activities of the business (Karadag, 2015). The financial
management helps in analysing and dealing with the money to take necessary decision. This
report will analyse the concept and importance of the financial management. Moreover, this
study also evaluates the role of the financial manager in organization and examine the key
sources of finance.
MAIN BODY
Concept of financial management
Financial management helps in analysing and dealing with the money to take necessary
decision. The financial management is vital activity for the company. It is prominent in planning,
organizing, controlling and also monitoring the relevant financial resources to attain higher goals
and objectives of the company (Mien and Thao, 2015, July). It helps in controlling the various
financial activities like the payments, effective utilization of the fund, accounting, procurement
of fund and various other activities which are associated with the money. The financial
management is useful because it helps in ensuring adequate as well as regular supply of the funds
to various department of the company. It is useful in ensuring adequate returns to the key
stakeholders of the company. The financial management also results in optimum utilisation of
the fund and also helps in ensuring safety on the investment. The financial management helps in
planning a sound capital structure for the company and helps in maintaining balance between the
debt and equity capital (Chandra, 2020). The financial management is useful in appropriately
making the sound decision making and is useful in sound decision making of the finances. The
financial management is significant in corporate savings and maximizing the wealth of the
company.
Importance of financial management
The financial management is considered to be relevant because it helps in higher degree of
financial decision making. It helps in raising finance from various sources in order to carry out
range of business activities (Banerjee, 2015). The financial management also significant because
it helps in making investment decision as well as dividend decision which is useful for the better
operational efficiency. The relevance of the financial management is that it helps in reducing the
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cost of finance and ensuring sufficient degree of availability of the funds. Finance is considered
to be the lifeblood of the organisation. It is useful in meeting the needs and requirements of the
concerned business and effectively maintain adequate degree of finance for the smooth
functioning of the business (Matthew, 2016). The goal of the organisation can be effectively
attained by managing finance and making proper use of the funds. It leads to tighter degree of
budget finances and also results in the strong financial controls. The financial management helps
in improving the profitability of the business. It helps in the strong financial control with the help
of using appropriate financial tools like ratio analysis, cost volume profit analysis, budgetary
controls and ratio analysis. The financial management is useful because it helps in significantly
increasing the wealth of the company and associated business concerns. It also leads to better
decision making and financial planning.
Examining the role of the financial manager in organization
The financial manager of the company are considered to be highly responsible for
managing the financial health of the company (Shapiro and Hanouna, 2019). The financial
manager of the company is significant in effectively producing the various financial reports like
balance sheet, cash flow statement, and profit and loss statement. The financial manager of the
organization is considered to be highly prominent in carrying out the direct investment activities
and is also prominent in developing relevant set of strategies for the attainment of the long term
financial goals. The financial manager is also responsible for taking relevant set of financial
decision (The Role of Finance and the Financial Manager, 2020). Other key responsibilities
mainly comprise of the spending the money and also raising of the fund. The financial manager
is useful for effectively maximizing the key value of the firm. The financial manager is also
responsible for effectively predicting the financial trends of the future and also reporting to the
key stakeholders of the company.
Determining the key sources of finance.
Short term finance
This helps in meeting the relevant financing needs of the company for the short period of
time i.e., less than 1 year (Madura, 2020). It is also considered to be as the working capital
financing. The key sources of the short term finance mainly includes trade credit, invoice
discounting, short term loans, business line of credit and factoring. It helps in carrying out day to
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day business operations and also results in attainment of the short term business goals and
objectives.
Long term finance
The long term finance is where the company tends to raise fund for the longer period of time
i.e., more than 1 year. However, the long term finance is usually required for the development,
modernization and expansion of the key relevant operations of the business (Jones and et.al.,
2018). The key sources of the long term finance mainly includes bonds, debentures, asset
securitization, equity shares, retained earnings, loan from banks, government and financial
institution, venture funding, internal accruals, preference capital, etc. to carry out operations of
the business and attain long term organizational goals.
CONCLUSION
From the conducted study it has been summarized that, financial management is prominent
in planning, organizing, controlling and also monitoring the relevant financial resources to attain
higher goals and objectives of the company. The relevance of the financial management is that it
helps in reducing the cost of finance. The financial management helps in improving the
profitability of the business. The financial manager is also responsible for taking relevant set of
financial decision. Short term financing meets the need of the company for the short period of
time for less than 1 year. The long term finance is where the company raise fund for more than 1
year.
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REFERENCES
Books and Journals
Banerjee, B., 2015. Fundamentals of financial management. PHI Learning Pvt. Ltd..
Chandra, P., 2020. Fundamentals of Financial Management|. McGraw-Hill Education.
Jones, C and et.al., 2018. Financial Management for Nurse Managers and Executives-E-Book.
Elsevier Health Sciences.
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises: A
strategic management approach. EMAJ: Emerging Markets Journal. 5(1). pp.26-40.
Madura, J., 2020. International financial management. Cengage Learning.
Matthew, B.T., 2016. Financial management in the sport industry. Taylor & Francis.
Mien, N.T.N. and Thao, T.P., 2015, July. Factors affecting personal financial management
behaviors: Evidence from Vietnam. In Proceedings of the Second Asia-Pacific Conference on
Global Business, Economics, Finance and Social Sciences (AP15Vietnam Conference) (pp. 10-
12).
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. John Wiley & Sons.
Online
The Role of Finance and the Financial Manager. 2020. [ONLINE]. Available through<
https://opentextbc.ca/businessopenstax/chapter/the-role-of-finance-and-the-financial-manager/>
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