Financial Management: Role, Importance, and Functions Report

This report provides a comprehensive overview of financial management, emphasizing its crucial role in the success and growth of an organization. It defines financial management as the planning, organizing, controlling, and directing of financial activities, including the procurement and utiliz...Read More

FINANCIAL MANAGEMENT

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Financial management refers to planning, organising, controlling and directing financial
activities like procurement & utilisation of the funds of enterprise. This refers to the application
of the management principles over the financial resources of number of companies. Financial
management is essential for the business enterprise to ensure that all the monetary resources are
utilised effectively. Present report is based on the financial management of the business. It plays
a vital role in the growth and success of the organisation. The report will be cover the role and
importance of financial management in the business.
MAIN BODY
Financial management
Financial management could be describes as the lifeline of the business enterprise. In
most of the cases companies are having limited financial resources where the need is unlimited.
There is great need for the business to manage its financial resources efficiently. Financial
management is performed by the financial managers who are the professional having knowledge
and experience in the field of finance. They ensure that the company’s financial requirements are
met in the most efficient manner. There are various definitions for the financial management
such as
Financial management refers to the activity that is concerned with the planning,
organising, controlling and administering the funds used for business.
Financial management is the business area for the management of the activities for the
selection of the best capital option and for the careful creation of the capital source for the
expenditures to be performed by the business for achieving the goals and objectives of the
business.
Role of Financial management
Financial management involves number of functions that are required to be performed by
the business enterprise. They are involved mainly in the procurement of funds from the best
possible option. The option that cost least to the company and that brings maximum benefits with
the least risk to the company (Jones And et.al., 2018). Options available for procurement of
funds involve banks and financial institutions, equity capital, debt securities and such other
options.
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Other function of financial management involves the management of cash flows within
the business enterprise. They ensure that the cash inflows are adequate in the business and also
the outflows are made towards productive activities. Financial managers have the role of
ensuring that that the business is having efficient cash cycle for carrying out the business
operations of the company on timely basis. Business should have adequate cash available for
carrying out its day to day activities, its working capital requirements and for ensuring that the
liquidity position of the company is strong.
Financial management also deals with the effective utilisation of the financial resources.
Financial managers ensure that the funds are used on the productive activities that are associated
with the business. The funds should be managed in the manner for adding value to the existing
availability of the funds. Money should not be blocked in the business as like other other assets
value of money also depreciates. They can make short term investments for earning returns over
their investments in the business (Finkler, Smith and Calabrese, 2018). Effective utilisation is
also concerned with making proper planned budgets for ensuring that the financial resources are
efficiently among various departments and business activities. Budgeting is an important tool
used in the financial management for taking management decisions related to the utilisation of
the funds. Financial managers control their cost and expenditures using the efficient management
tools.
Scope of the financial management is very wide it is concerned with the effective
utilisation of the company resources and also maximising the wealthy of shareholders. It ensures
that every financial decision is taken after making proper analysis and the understanding of the
possible options (Madura, 2020).
Objective of the financial management is of procuring the finance and using them in
profitable manner. It helps the managers to take the investments decisions using various tools
and techniques such as capital budgeting. It is undertaken for investments involving high funds
or for procuring the capital assets for the business. Capital budgeting or investment appraisal
techniques helps the business in assessing the viability of the investments. They help to
determine the investment of projects that cost less or will be recovered within shot time span so
that it could generate profits after the recovery of initial costs.
Short term decisions are concerned with the working capital management of the
company. It involves decision related with the management of inventory, cash or bank deposits
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and other short term decisions. They are required to be taken carefully as they affect directly the
liquidity position of the company.
Financial management is playing a critical role in the success and growth of the
organisation. If the funds and financial resources are not managed adequately they may affect the
working of the business. Therefore, managers are required to analyse the business option before
taking any financial decision for the enterprise.
It is also important for managing the capital structure of the company. It is very essential
as the capital structure costs to the company (Shapiro and Hanouna, 2019). Therefore they are
required to ensure that there is an adequate mix of debt and equity where the cost of capital is
minimum. Equity capital costs high to the company but involves less financial risks and on the
other debt securities costs less but are having financial risks and fixed obligations. Managers
have the role of having equity and debt capital in appropriate ratio where the risks associated
with the business is least. Adequate capital structure is essential for the long term sustainability
and growth of the company.
CONCLUSION
From the above report it is concluded that the financial management plays an important role
in the growth and success of the organisation. There are number of roles and functions to be
performed by the financial management. They are concerned with the making the most efficient
utilisation of the company resources and procuring funds from the sources that costs less to the
company with maximum benefits.
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REFERENCES
Books and Journals
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. Wiley.
Madura, J., 2020. International financial management. Cengage Learning.
Jones, C. And et.al., 2018. Financial Management for Nurse Managers and Executives-E-Book.
Elsevier Health Sciences.
Finkler, S.A., Smith, D.L. and Calabrese, T.D., 2018. Financial management for public, health,
and not-for-profit organizations. CQ Press.
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