What is Financial Management
Financial Management is an activity inside an organization which is a process of controlling, organizing, planning, monitoring the financial resource. The Financial Management does plan its working process in all criteria to attain organizational growth by reaching objectives and goals.
This allows better maintaining the financial activities of organizations which procure funds, utilize funds, payment, and assessment of risk, accounting and all options relates to financial assets.
An organization cannot work well until it has shown its profit and loss on paper with exact way of expenditure. Financial Management does help the management to decide on spending and savings respectively.
Objectives of Financial Management
The aim of Financial Management is to maintain the organization finances. It is by reaching out with business complaints and implementing necessary relations. This require extensive execution and planning which done especially for business flourish and profitability interest.
- FM ensures a suitable and regular supply of funds to organization
- It ensure to optimize use of Funds and use the funds with minimum cost for maximum possible way of usage
- Create stable structure with capital distribution and steady platform for equity and debt
Also Check: Public Financial Management System
Scope of Financial Management
Financial Management does help an organization or company to utilize their finance. Thus may most profitable way which achieved by Traditional Approach and Modern Approach.
Financial Management through Traditional Approach
This approach of Financial Management does restrict the procurement of funds by corporate means to meet their financial needs. Here are details of procurement which refers to funds externally as an interdependent ace sect of funds.
- Source of finance from different services or products
- Collect necessary funds from capital market of financial instruments
- Accounting and legal relationship between source of finance and business
These approaches don’t put the finance at first for routine business such as expansion, liquidation, reorganisation and promotion. In this approach the financial manager doesn’t deal with internal matters but he has to maintain good bonds with external parties and financial bankers.
Here, he is only responsible to get necessary funds for business, but don’t have control over how these funds being used
Limitation of Tradition Financial Management Approach
The Traditional Approach of finance considered a one sided approach with few drawbacks and considered as narrow because of several reasons. They give more attention to the procurement system and to the problems arising during such scenarios.
There is no proper system for utilization of procured funds. This approach does point to outside parties which provide funds to business but ignores the internal parties who take responsibility for funds.
Traditional approaches focus on financial issues of corporate enterprise and the financial problems of non corporate like partnership firms and the trades ignored.
They consider the fund allocation as contingencies of sporadic incidents like incorporations, reorganization, consolidation, mergers. The daily financial problems of business enterprises ignored which brings issues inside the work environment.
Modern Approach of Financial Management
The modern approach does bring financial managers to consider the analytical and border point. They asked to consider both the optimum use of resources and distribution of funds. As the arrangement of funds is an important component which does mean for short time and long term financial problems. The below three decisions may taken by the finance manager.
Investment Decision
The decision relates to selection of assets which invest by firms and the assets which firms acquire which might for long term or short term. Capital budgeting is the process of selecting assets or investment proposals which yield for the long term. They deal with assets of current which are highly liquid in nature.
Financing Decision
The scope of finance indicates the possible sources of raising the finance. The financial planning decision attempts sources and possible accumulation of funds. As the decision to ensure the availability of funds whenever required.
As the financial decision made to raise funds at the right time, and financial decision has to opt for various cost effective methods to run business smoothly.
Dividend Decision
The decision taken in regards to net profit distribution which divides into dividend for shareholders and retained profits. This may concerned with determining the percentage of profit earned and paid to every shareholder as dividend. The financial manager makes decisions regarding such profits paid out and works for a better firm.
This decision made to ensure every shareholder does get a proper share with the correct financial management approach. For more details: visit the Wiki page.
What are roles in financial management?
The major roles in financial management are financial planning, financial decision, control, cash flow management, capital management, risk management, disposing of surplus and financial reporting.
What is a modern approach to financial management?
The modern approval of financial management does ensure the analysis of financial problems of firms. According to this approach, the proper financing decision based on looking at every aspect of funds being utilize for growth.
Is the traditional approach of financial management still active?
Since the modern approach merged in 1950, the management of most organizations has moved towards the modern approach. The scope of growth and dividend of funds with every shareholder done. This has made business to move beyond the traditional approach.