Financial Management: The Role of Finance in Business Growth

This study explores the crucial role of financial management in achieving business objectives. It delves into the nature and purpose of financial management functions, highlighting key areas like capital management, cash management, and profit planning. The study further examines the relationship between financial objectives, corporate objectives, and corporate strategy, emphasizing the importance of aligning these elements for successful business operations. It also discusses the role of management in meeting stakeholder objectives, including the application of agency theory to address potential conflicts and ensure alignment of interests. The study concludes by emphasizing the vital role of financial management in driving business growth and achieving sustainable success.

Financial Management
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Table of Contents
Introduction................................................................................................................................3
The nature and purpose of the financial management functions of a business..........................3
Relationship between financial objectives, corporate objectives and their corporate strategy..4
The role of management in meeting the stakeholder objectives, including the application of
agency theory.............................................................................................................................5
Conclusion..................................................................................................................................6
Reference list..............................................................................................................................7
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Introduction
In this globalised business platform, organisations constantly try to accelerate their
synchronised operations through utilisation of effective management approach. In this
context, finance management is required to direct and control the financing activities such as
fund utilisation as well as procurement. The aim of this study is to identify the nature of
finance management in regards to achieving business objectives.
The nature and purpose of the financial management functions of a business
Accounting is the tactical way to address the evaluation of organisational activities, whereas
finance is the life of entire business process. The nature and purpose of finance management
is dependent on following factors.
Capital Management
Finance management is an important part of strategic business planning. According to Birch
(2017), after creating a structured strategic plan, managers give their priority on fund
allocation for fostering different operational task. Through this proper allocation and
reviewing process, they can understand how much equity capital needs to be raised through
the support of investors and lenders.
Cash management
In both small and larger business operation, owner must be aware about entire cash amount in
the form of bank deposit and assets. This assessment is required to measure the available
liquidity, which is required for timely payment to suppliers and employees (Bontis et al.,
2015). If liquidity is not sufficient financers will arrange the reaming the cash in form of
credit loan.
Profit planning and cash control
Business managers and entrepreneurs measured there business success in the form of profit.
In this case, owner is concerned about currency fluctuation, interest rate and change in
commodity prices. These factors are also associated with the possible risk in business activity
(Fracassi, 2016). Therefore, managers are constantly reviewing their financial statement to
control their overall expense while it suddenly goes out of the structured budget line.
These are the primary purpose and nature of finance management in business process.
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Relationship between financial objectives, corporate objectives and their corporate
strategy
Corporate objectives are related to the overall mission of the organisation, which is
sequentially broken down into commercial goals. In this case, financial objectives are aligned
with entire business tactics to measure monitory terms and conditions. Managers can run
profitable business through alignment of both corporate strategy and its objectives within
financial parameter. These three outlines are interrelated with each other based on these
following factors, which are sales, reporting system, cost containment, investment and profit
margin.
Profit margin
If managers set their sales strategy to sell at low price for generating high volume, then they
have to improve the manufacturing process through the support of Suppliers. Managers can
take effective decision on profit margin through negotiating better contracts with retailers and
wholesalers.
Sales
All business has variety of sales objectives for gaining maximum profit at all level. For
instance, increase online sales are financial objectives. In addition, these factors can give the
managers a better chance to gain exponential growth on sales volume (Indriani and Sari,
2018). Through increasing sales, organisation can gain stable market position in the market
place. Therefore, these financial objectives are related with their corporate business strategy.
Investment and Debt Service
In this section, financial advisor and tax advisors determine the cash management criteria in
effective way. If managers have large cash balance, then they can invest on different purpose.
In this case, they can provide better return on their money. In addition, managers are
reviewing their financial reports to understand the requirement of external credit in business
process. In this case, financial reporting system is also related with corporate business tactics.
In this case, this report support to price planning, budgeting and channel distribution
(Loughran and McDonald, 2016). In addition, maximisation of shareholder wealth is
measured by share price. In this case, share price could fall due to potential investment.
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Therefore, managers then re-structure their corporate objectives for resolving such business
consequences. Therefore, these are the major interrelation with financial objectives.
The role of management in meeting the stakeholder objectives, including the application
of agency theory
In the organisation, stakeholders are the group of individual, who have interest with the
firm’s decision and business action. In the current period, major stakeholders are
shareholders, employees, government, customers and bondholders. For instance, shareholders
earn the capital gain through sale of shares. On the other hand, employee’s perception is
related to job satisfaction, remuneration, job security and self-actualisation. Therefore,
organisational growth is dependent on their support and perception (Kandampully et al.,
2015).
In this case, managers are applying agency theory for resolving the consequences in business
due to unaligned goal or distinct level of risks. Through this theory, managers are resolving
the internal problems in business operation, which are related shareholder and employees
objectives. In this case, managers are taking decision based on their perception. Stakeholders
are vote major resource of the company to deliver strategic idea. For instance, without
support of employees organisation cannot maintain their overall productivity as well as profit
(Gao et al., 2015). Therefore, managers have to restructure their corporate objectives through
understanding stakeholder’s viewpoint. Managers have to abide by legal agreements of
contract, empowerment and transaction for marinating ethical business responsibilities as per
governmental guideline. Therefore, these tactics are linked with financial objectives for
fostering growth and market stability. In addition, managers have to understand the activities
of third party business holders to recognise operational consequences.
If principle agent problem emerges while agent and principals are in conflict, managers are
responsible to minimise the situation through solid corporate policy. These conflicts can
create moral hazard in the overall business performances (Kireeva, 2016). Based on the
agency theory, managers have to arrange their stakeholders in proper position to understand
their consequences.
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Conclusion
It can be deduced that, financial management is an essential part of the business to foster
maximum growth in both profit and productivity. Managers can run profitable business
through alignment of both corporate strategy and its objectives within financial parameter.
These three outlines are interrelated with each other based on these following factors, which
are sales, reporting system, cost containment, investment and profit margin. Managers are
applying agency theory for resolving the consequences between their stakeholders. The study
has critically identified the purpose of financial management and its relation with corporate
objectives.
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Reference list
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management of value. Science, Technology, & Human Values, 42(3), pp.460-490.
Bontis, N., Janošević, S. and Dženopoljac, V., 2015. Intellectual capital in Serbia’s hotel
industry. International Journal of Contemporary Hospitality Management, 27(6), pp.1365-
1384.
Fracassi, C., 2016. Corporate finance policies and social networks. Management
Science, 63(8), pp.2420-2438.
Gao, H., Xie, J., Wang, Q. and Wilbur, K.C., 2015. Should ad spending increase or decrease
before a recall announcement? The marketing–finance interface in product-harm crisis
management. Journal of Marketing, 79(5), pp.80-99.
Indriani, E. and Sari, C.T., 2018. Behavioral Finance: The Analysis Of Investor Behavior
Based On Belief And Feeling And The Investor Rationality Towards Lq 45
Stocks. Innovations, 15(1), pp.292-298.
Kandampully, J., Zhang, T. and Bilgihan, A., 2015. Customer loyalty: a review and future
directions with a special focus on the hospitality industry. International Journal of
Contemporary Hospitality Management, 27(3), pp.379-414.
Kireeva, E.V., 2016. Effective management of personal finance. Современные тенденции
развития науки и технологий, (5-7), pp.5-7.
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A
survey. Journal of Accounting Research, 54(4), pp.1187-1230.
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