FINANCIAL
MANAGEMENT
THESSA JORVINA
INSTRUCTOR: EDGAR LOPEZ
WHAT IS FINANCIAL
MANAGEMENT? EXPLAIN
Financial management is strategic planning, organizing, directing, and controlling of financial
undertakings in an organization or an institute. It also includes applying management principles to the financial
assets of an organization, while also playing an important part in fiscal management.
The objectives involved in financial management include:
•Maintaining enough supply of funds for the organization;
•Ensuring shareholders get good returns on their investment;
•Optimum and efficient utilization of funds;
•Creating real and safe investment opportunities.
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WHAT IS FINANCIAL MANAGEMENT
AND EXAMPLE?
Financial management is the effective handling of money through planning, organizing, directing and controlling
funds in a corporation or for an individual. Financial management uses ratios, equities and debts to reach investment
goals.
Some specialized types of financial management exist. For example, managerial finance involves the way
monetary matters interact with the overall management of the company. Another specialty is corporate finance, which is
the study of how a corporation allocates money. Another specialized field is how information technology functions as part
of a financial management strategy. This field involves the allocation of IT resources to reach business goals.
WHERE IS THE MAIN PURPOSE OF FINANCIAL
MANAGEMENT?
1.Estimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of
the company. This will depend upon expected costs and profits and future programs and policies of a concern. Estimations
have to be made in an adequate manner which increases earning capacity of enterprise.
2.Determination of capital composition: Once the estimation have been made, the capital structure have to be decided.
This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a
company is possessing and additional funds which have to be raised from outside parties.
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3. Choice of sources of funds: For additional funds to be procured, a company has many choices likea. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds.
Choice of factor will depend on relative merits and demerits of each source and period of financing
4.Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety
on investment and regular returns is possible.
5. Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two ways:
a. Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus.
b. Retained profits - The volume has to be decided which will depend upon expansional, innovational,
diversification plans of the company.
6. Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for
many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting
current liabilities, maintenance of enough stock, purchase of raw materials, etc.
7.Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise
control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit
control, etc.
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WHAT ARE THE 3 TYPES OF FINANCIAL
MANAGEMENT?
1. Financing Decision
2. Investment Decision
3. Dividend Decision
Financing Decision
This is the most basic type of financial management is financing decisions. Financial decisions that
are made in connection with the raising of funds. Identifying multiple sources of funding, as well as
the amount of money to be raised from long- and short-term sources, is part of the process.
As part of the financing decision, the financial management evaluates the cost of capital and
financial risks associated with various choices, and then determines the percentage of money to be
obtained from shareholders’ funds and borrowed funds. A company can raise long-term finance in
two ways: through the use of shareholder cash or through the use of borrowed capital.
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Investment Decision
The second most popular financial management types is investment decision. Investment
decisions are financial decisions made by management to allocate funds to various assets with
the goal of generating the greatest potential returns for the investors. It entails analyzing a
variety of potential investment possibilities and picking the most advantageous ones. Investment
decisions might be made for the long run or for the short term.
Dividend Decision
Dividend decisions are financial decisions that are made in relation to the distribution of a
company’s share of earnings to its shareholders in the form of dividend payments. Whenever
possible, dividend choices should be made with the broader goal of maximizing shareholder value
in mind. Choosing the amount of profit (after tax) to give to shareholders as dividends and the
amount of profit to maintain in the firm for future growth is what the dividend choice entails, as the
name implies.
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WHAT ARE THE ROLE OF FINANCIAL
MANAGER?
The financial management department of any company is handled by a financial manager.
This department has numerous functions, such as:
•Calculating the capital required. The financial manager has to calculate the amount of capital an organization requires.
This depends on the policies of the company with regards to expected expenses and profits. The amount required has to be
estimated in such a way that the earnings in the company increase.
•Formation of capital structure. Once the amount of capital has been estimated, a capital structure needs to be formed. This
involves a debt-equity analysis, both short-term and long-term. The outlook of the structure depends on the amount of
capital the company owns, and the amount that needs to be raised via external sources.
•Investing the capital. Every organization or company needs to invest money in order to raise more capital and gain regular
returns. This means the financial manager needs to invest funds in safe and profitable ventures.
•Allocation of profits. Once the organisation has a solid net profit, it is the financial manager’s duty to efficiently allocate it.
This could involve keeping a part of the net profit for contingency, innovation, or expansion purposes, while another part of
the profit can be used to provide dividends to the shareholders.
•Effective management of money. The financial manager is also responsible for effectively managing the company’s money.
Money is required for various purposes in the company such as payment of salaries and bills, maintaining stock, meeting
liabilities, and the purchase of any materials and/or equipment.
•Financial control. Not only does the financial manager have to plan, organize, and obtain funds, but he/she also has to
control and analyse the company’s finances. This can be done using tools such as financial forecasting, ratio analysis, risk
management, and profit and cost control.
WHY IS FINANCIAL MANAGEMENT
IMPORTANT?
•Helps organizations in financial planning and acquisition of funds;
•Aids organizations to effectively utilize and allocate the funds received or acquired;
•Supports organizations in making critical financial decisions;
•Helps in improving the profitability of organizations;
•Increases the overall value of organizations;
•Provides economic stability.
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