Financial Management: Meaning, Importance, Role, and Sources of Finance

This report provides an overview of financial management, including its meaning, importance, role, and sources of finance. It explains how organizations raise funds for their short-term and long-term processes. The report also discusses the role of financial managers in ensuring the efficient utilization of funds.

FINANCIAL MANAGEMENT
REPORT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Meaning of Financial Management.............................................................................................3
Importance of financial function within organization.................................................................3
Role of Financial Manager...........................................................................................................4
Sources of Finance.......................................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
Finance is the life-blood of any organization of any organization and should be
continuous flow of funds to run the business. Sound financial management is used for operation,
production and marketing purpose mainly (Azam, Abdullah, 2015). General principle of
management are applied in financial management. This report content the financial management
and their functions in the organization. It also analyses the role of financial manager in
organization and how organization can raise funds for their short term and long term process.
MAIN BODY
Meaning of Financial Management.
Financial Management include the planning, organizing, directing and controlling of the
financial activities which are procurement and utilization of financial assets and funds of the
organization. This activity include planning, raising, controlling and managing of funds which
are used in the organization activities. It is mainly used for the procurement and utilization of
funds. The management analysis the need of funds, funds to be raised, control of funds,
distribution of surplus fund and capital budgeting for the organization (Cuervo-Cazurra, Nieto,
Rodríguez ,2018). Financial management are used for short run and long run of business
investment decision in fixed assets and current assets. Financial management helps organization
for smooth work flow in all department by regular adequate supply of funds, ensure adequate
return to shareholders, optimum utilizations of funds, ensure safety of investment and to sound
strong in capital structure.
Importance of financial function within organization.
Financial function is one of the segment of financial management. These functions are
used to acquire and utilize of funds for used of operation efficiently. While financial functions
also ensure about enough funds available at efficient cost, efficient use of funds. Financial
functions are been divided into three:
 Long term finance: This includes high amount of financial investment which are time
period of more than 3 years. The sources of long term financial include share capital,
owner capital, debenture, long term loans from financial institution or through internal
sources.
 Medium term finance: This finance include with the time period of 1 to 3 years and being
sourced from financial institution and banks in the form of loans.

 Short term finance: This is the finance used for daily routine or working capital which are
of less than 1 year. Funds can be raised through banks in the form of overdraft,
commercial paper, advance money from traders (Rashidi, 2018).
Importance of financial functions are:
 To know the need of finance: Financial function help business to know about the funds
required for running the activity. It helps business to know about how much investment
will be needed for the particular activity.
 Identify source of Finance: Once how much need of money for the activity is been
analysis, raising of funds from the market in the form of loan from bank or financial
institution or through equity form for long term loans.
 Analyse the source of finance: When the source are identified by the financial manager,
they should choose the best sources by comparing risk and cost involved in all sources.
 Investment: when the funds are raised, investment of those funds should be in effective
manner that gives the higher return to organization. While the cost of procurement and
utilization of funds should be less than return of investment.
Role of Financial Manager
It is most complex and important activity in the organization. Financial manager perform
all the required financial activities in firms. The following roles played by financial manger:
 Raising of funds: In order to meet all the financial requirement and obligation of the
business, financial manager help organization to have enough cash liquidity and funds.
Organization can raise funds from equity and debt which is considered by the financial
manager to opt for the best by analysis the ratios between debt and equity. While
manager also help organization to maintain balance between debt and equity.
 Funds Allocation: while the funds are raised through various channels, funds allocation
ton different department is done by manager in such a way that are optimally used.
 Evaluating profits: profit is one of the main function of any organization. Earning
profits is very important for firms to sustain in the market. Profit are rises from the
various factor like demand of goods and service, industry competition, pricing, economy
of country and others.

 Knowing capital market: Prices of shares are known through the stock market of the
country. The share prices continuously changes with the change in sale and purchase of
goods and service of companies (Scoggins, McMasters, 2018).
Sources of Finance.
Sources of finance are available for any organization through equity, debenture, owner
funds, retained earning, working capital, long term loans from banks and financial institution,
venture findings. This sources of funds are decides by financial manger by knowing the need of
funds in long term or short terms basis.
Sources of funds for short term and long term for start-up or running business are
decided from :
Based on periods: This shows the time period of funds taken from the market in the
form of debt and includes long term finance which are more than 3 year of time period, medium
term loans include 1 to 3 years and short term loans are for less than 1 year.
Based on ownership: the sources of funds include 2 parts which are owners funds which
shows company's capital, equity capital, preference share and retained earning. While borrowed
funds are those funds which are taken from market and interest are paid by company. These are
in the form of bank loans, commercial paper and other financial institution.
Based on generation: They include internal source which are generated within
organization like selling of assets or retained earning (Egolum, Emoh, Onyejiaka, 2017).
Whereas, external source are arranged from market like issue of equity share to public.
CONCLUSION
The report concludes that the financial manager have to select very effective source to
raise funds by analysing the risk and cost of raising it.

REFERENCES
Books and journals
Azam, S.F. and Abdullah, M.A., 2015. Differential Roles between Owner and Manager in
Financial Practice That Contributes to Business Success: An Analysis On Malaysian
Small Business. Academic Journal of Interdisciplinary Studies. 4(1 S2). pp.123-123.
Cuervo-Cazurra, A., Nieto, M.J. and Rodríguez, A., 2018. The impact of R&D sources on new
product development: Sources of funds and the diversity versus control of knowledge
debate. Long Range Planning. 51(5). pp.649-665.
Rashidi Baqhi, M., 2018. The Role of Environmental Uncertainty, Financial Constraints and
Accounting Conservatism in Limiting the Performance Outcomes Due to Manager
Overconfidence. Accounting and Auditing Review. 25(3). pp.347-366.
Scoggins, C.R. and McMasters, K.M., 2018. The Business of Surgery: How to Lead as Financial
Manager. In Surgical Mentorship and Leadership (pp. 237-245). Springer, Cham.
Egolum, C.C., Emoh, F.I. and Onyejiaka, J.C., 2017. Sources of funds available to private
investors for housing development in Nigeria. British Journal of Environmental
Sciences. 5(3). pp.16-29.
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