Define financial management.
Financial management is the application of general management principles to manage the financial resources of the business. It includes
the financial activities. For instance it deals with the financial activities like
– procurement of funds
– expending the funds
etc. It deals with the procurement, allocation and control of the financial resources of an enterprise.
What do you think is the primary objective of financial management?
The primary objective of financial management is to ensure maximum returns for the shareholder’s investments. So, it deals with the objectives
– To ensure continuous and substantial inflow of funds to the concern.
– To ensure that sufficient returns are returned to the shareholders.
– Optimum utilization of the funds through their utilization in maximum effective way and with least cost..
Describe the elements that play key role in the process of financial management.
The following are the three elements that play key role in the process of financial management.
– Financial Planning: Financial planning makes sure that the funding is available to the business at all times needed.
– Funding is needed in the short term to invest in stocks and equipment, fund the credit sales, salaries and wages.
– Funding is needed in the long term expand the business operations and fund the acquisitions.
– Financial control: Financial control is a key element that help the business to meet the objectives. It deals with
– efficient utilization of the assets
– securing the business asets
– management acting in accordance with the best interest of the shareholders and in compliance with the business rules.
– Financial decision making: This key element deals with the investment, financing and dividends.
– Investments must be financed in one way or the other. However the business should also consider raising finance through alternate business alternatives like borrowing from banks, sale of new shares or getting the materials or goods from suppliers on credit.
– When the business earns profits, financial decision should be taken to ensure that the profits should be re-invested into the business or it should be distributed to shareholders through dividends.
– Dividends should be optimally decided. If they’re high, then the business will run into lack of funds and may not be able to reinvest to grow the revenues and to earn more profits.
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