Financial Management

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Financial Management

  • Understand the meaning of financial management

  • Know about the various aspects of financial management

  • Know about the different terms used in financial management

  • Learn about the importance of raising funds and fund allocation through budgeting

Introduction

Every organization, irrespective of its size or ownership pattern, has to manage its finances. The overall objectives of an organization cannot be achieved in the absence of financial management. Many organizations fail in their objectives because of financial mismanagement and this failure rate is quite high among the small business enterprises. Hence, financial management is vital for all types of organizations, profit making as well as non-profit making. In case of non-profit making organizations also the effectiveness and performance depends on their financial resources management.

Financial Management

When we attempt to analyze the financial functions of an organization we find that funds (capital) have to be:

  • Procured
  • Allocated for various activities
  • Used effectively
  • Monitored

Further, the results of all these have to be recorded also. All this brings to fore a three dimensional financial process:

  • Financial management
  • Management Accounting
  • Financial Accounting
  • All these three are at the same time separate yet overlapping areas of thee financial functions of an organization.

  1. Financial Accounting deals with the measurements and reports of the financial position of the organisation and providies this to external users such as the shareholders, creditors, government agencies, etc.

  1. “ Finacial Accounting is the art of recording, classifying and summarising in a significant anner and in terms of money, transactions and events which are, in part at least, of  a financial character and interpreting the results there of”.

  1. Managerial Accounting deals with procuring of data for the organisation’s management i.e. to serve the internal users with necessary accounting information to carry out the management tasks of planning, organising, actualising and controlling. “ Management Accounting is the presentation of accounting Information in such a way as to assist management in creation of policy and in the day to day operations of an undertaking”.

  1. Financial Management deals with the process adopted by an organisation for taking financial decisions through analysing and interpretation of financial data for meeting the organisations objectives. Hence, the tasks involved in Financial Management include:

  • Analysing financial needs
  • Forecasting financial needs
  • Managing working capital
  • Planning capital structures
  • Organising financial operations
  • Monitoring and controlling finances etc.

In fact raising funds and allocating funds for business are the two prime financial management tasks.

Financial Planning

Financial planning is an appraisal of those financial aspects that may or are likely too occur in future but need immediate decision making. It involves setting financial objectives in terms of profits, sales or acquistion of assets along with financial foorecasting for the organisation. This includes estimation in the areas of:

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  • Capital requirements
  • Capital structure
  • Credit policy
  • Other financial contigencies.

In fact, Financial Planning is concerned with raising funds and there effective utilisation. The aim here is to maximise the organisation’s wealth keeping in view the organisation’s objectives.

Generally, financial planning is done through budgeting and this also takes care of resource allocation.

Raising Funds

Both as manager as well as an entrepreneur, you must be aware of the capital generation process or what is termed as raising of funds for doing business. It is a function of the manager or entrepreeur ...

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