Financial management refers to the process of planning, establishing and controlling the financial resources in the organization. It deals with the procurement and usage of the funds in the company. The main objective of financial management is to ensure effective use of financial resources to increase shareholders wealth.
Objectives Of Financial Management
Some of the key objectives of financial management can be pointed out as follows:
1. To Assess Capital Need
One of the primary objectives of financial management is to assess the capital needs to perform business activities smoothly. Requirement of fixed assets, long-term and short term expenses, promotional costs etc. should be properly evaluated to build foundation for the business.
2. To Plan Sound Capital Structure
Financial management helps to design sound and feasible capital structure that helps to minimize cost and risk of the business. It ensures proper composition of equity and debt capital that supports stability and success of the business.
3. To Minimize Risk
Another notable objective of financial management is to minimize the operating risk in the business. Proper planning and effective management helps to calculate potential risks and avoid them.
4. To Maximize Profitability
Financial management ensures proper allocation of funds, minimizes the risk, wastage and unnecessary costs that helps to maximize the profit of the business. It also helps to increase shareholders wealth.
5. To Improve Efficiency
It provides important financial information to the management that helps to make sound decisions to improve the efficiency of the organization.
6. To Maintain Liquidity
Financial management helps to maintain optimum level of liquidity in the business. It helps to fulfill short-term obligations that ensures smooth flow of business activities without any shortage opf fund.
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Functions of financial management
7. To Facilitate Planning
Financial management maintains record of various monetary activities in the organization. It provides valuable data and information to the management that helps to measure the performance of the business. Management can measure the success of the company with the helps of financial management. So, it assists the management to formulate future plans and financial policies on the basis of information provided by financial management.
