Reasons: Why One Need Financial Management

Justifications for Financial Management 

Financial management is the planning, coordinating, managing, and controlling of all financial activities, including the procurement and utilization of funds for an organization. It comprises putting general management principles to use with the company's financial assets.

 

Financial Management's Responsibilities:

•  Calculating the necessary investment
•  How to calculate the capital composition
•  Choosing financial resources
•  Monetary expenditure 
• Get rid of extra cash management.
  
  
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   Goals of Financial Management

 Acquisition, distribution, and control of a company's financial resources are all included in financial management. One of the goals may be to ensure that the organization receives a steady and sufficient supply of funding. To ensure that investors receive reasonable returns based on their earning potential, the share's market price, and their expectations.

 ROLE OF FINANCIAL MANAGER 

An organization's vital financial activities are all managed by a financial manager. The individual in charge must have a long-term vision to ensure that the funds are spent as efficiently as possible. A finance manager's main duties include the following:

 a)  Getting Money

 Having enough cash and liquidity is crucial for the company to execute its obligations. A company can raise money by selling shares or by taking on debt. The decision on how much debt and how much equity to employ is made by a financial manager. It's critical to keep the debt-to-equity ratio at a reasonable level. 

b)  Money Distribution

 Allocating the funds once they have been raised via various techniques is a crucial responsibility. In order to use the funds as effectively as possible, they should be dispersed accordingly. To allocate funds in the most effective manner, the following must be considered. 

1. The size and potential for expansion of the business. 

2. The state of the assets' financial condition. 

These financial decisions both directly and indirectly affect other managerial activities. Therefore, putting up a strong asset mix and properly allocating funding are two of the most important tasks.

 C)  Money Management

 One of the main objectives of every business organization is to make a profit. Every business has to turn a profit in order to survive and grow. Profit planning deals with how the company should use its earnings. Cost and output, industry competition, demand and supply dynamics, pricing, and economic circumstances are only a few of the many elements that affect profit. When there is a good balance between variable and fixed factors of production, the company's profitability may increase. Fixed costs originate from the use of inputs of production that are permanent, including land and equipment. In order to maintain a tandem, it's critical to continually evaluate the depreciation cost of fixed production expenses. 

d) Understanding the Financial Market

 When shares of a corporation are traded on a stock market, securities are continually sold and acquired. Consequently, a financial manager's in-depth knowledge of the stock market is one of their main duties. When securities are exchanged on the stock market, there is a sizable amount of risk involved. As a result, a financial manager considers the risk involved in trading shares and debentures. The financial manager has control over how the profits are allocated. Instead of the firm paying out its profits as dividends to stockholders, many investors choose to invest in the business itself to support development. The acts of financial management directly impact how the stock market operates.

                                 Financial resources

The three primary areas of finance are personal finance, corporate finance, and public finance. The subcategories of finance that are more recent include social finance and behavioral finance. 

 

1. Personal Finance

 A  person's circumstances and behaviors are specific to their own finances. As a result, an individual's income, living expenditures, goals, and preferences have a significant impact on related financial plans. Financial planning comprises assessing a person's current financial condition in order to build plans for future requirements within budgetary constraints. For instance, they need to save money for their retirement. They must save or invest enough money throughout the course of their working lives to cover their long-term objectives in order to do that. Such money management decisions fall within the category of personal finance.

 2. Business Financing

 Corporate Finance is the term used to describe the financial operations necessary to manage a firm. Usually, a division or department is created to supervise such financial activities. For instance, a large company could have to decide between selling shares or issuing bonds to obtain more money. The corporation may receive guidance from investment banks on these issues and help with the marketing of the securities. Venture capitalists or angel investors may provide cash to startups in exchange for a part of the business. If a company is successful and intends to go public, it will conduct an initial public offering (IPO) to obtain capital by selling shares on a stock exchange. 

3. Finances Public

 A government's ability to pay for the services it provides to the general population is influenced by its taxing, spending, budgeting, and debt-issuance policies, among other public finance factors. It belongs to the monetary policy. The federal and state governments support the prevention of market failure by keeping an eye on the distribution of resources, the distribution of income, and the stability of the economy. Taxes are how most regular money is acquired. Borrowing from banks, insurance providers, and other nations is used to pay for government spending. A government organization must manage finances in daily operations as well as perform social and fiscal tasks.

                                  Financial Exchanges

 Financial activities are the actions and exchanges that companies, governments, and individuals carry out to further their economic goals. These are activities that involve the influx or outflow of money. A few examples are buying and selling products (or assets), issuing stocks, beginning loans, and maintaining accounts. A corporation engages in financial activity when it sells shares and pays off the debt. Similar financial actions are carried out by people when they borrow money and governments collect taxes to achieve certain financial objectives.