Financial management is a practice of planning, managing, monitoring and controlling the financial activities of the organization. It is related to the procurement and usage of fund in the business. It is important to ensure the proper utilization of fund to achieve the financial goal of the firm.
Functions Of Financial Management
The main functions of financial management can be highlighted as follows:
1. Identify The Capital Need
One of the major functions of financial management is to estimate the amount of capital for the business. Size of capital depends on the size and nature of the business.
2. Determination Of Capital Structure
Determining the sound capital structure is another key function of financial management. It ensures proper mixing of different sources of funds (debt and equity) that helps to reduce the cost of capital and increase the profitability of the firm.
3. Allocation Of Fund
Proper allocation of fund is important to achieve the objective of the company. Financial management helps to allocate the raised capital in profitable sectors.
4. Financial Reporting
It tracks and records all the financial activities of the business and reports to the top management. It helps the management to evaluate the performance. It also helps to make future plans and policies.
5. Cash Management
Financial management helps to maintain proper liquidity in the business by maintaining balance between cash outflows and inflows. It ensures smooth flow of business operations and helps the company to meet short term obligations.
6. Dividend Decision
Financial management helps to company to make decision regarding surplus profit. Profit can be distributed as divided or can be retained for future use.
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Objectives Of Financial Management
7. Assists Decision Making
It uses different analytical methods like ratio analysis, financial statement analysis etc. to examine the business performance. It helps the company to make financial decisions to improve the performance in the future.
