Finance is considered as the LIFE BLOOD OF BUSINESS. It is the master key which provides access to all resources for being employed. Generally we can say that finance management is the procurement and utilization of fund in proper way. It also means the management of cash out flow by considering the cash inflow and future obligations .Financial management also concerned with receiving financial resources and their effective utilization to achieve organizational goals. The term financial management can be defined as managerial activity which is concerned with planning, organizing and controlling of the financial resources of the organization. Financial management is the most important function of a business organization because all critical decisions of a business organization are directly related to finance.
Financial management is an integral part of overall management and finance manager occupies a central position in the business organization. As financial management plays significant role in the business management, excellent knowledge and understanding of financial management policies, its procedures, and its impacts are very significant in the success of a business organization. The finance manager has to ensure organizational efficiency through proper acquisition, allocation, and movement of finance. He has to provide operational efficiency by providing timely supply of fund , otherwise organization will lose its good will and its position in the industry concerned and gradually it will lead to its shut down. Lack of professional financial management is the one of the major reason which leads a business organization to its shut down.
Deep understanding of advanced concepts in the area of accounts, statutory compliance, financial activities are essential to keep a business organization financially safe and grow to meet challenges in the era of globalization, cut throat competition. Financial management is also very important to business organizations which plan the development of product range and expansion.
A good finance manager is a good planner, organizer, director and controller of inflow and out flow of funds. The ultimate objective of financial management is to maximize the value of organization by increasing profit and wealth of the organization. Financial management includes broadly three important decisions which are financing decision, investment decision, and dividend decision.
OBJECTIVES OF FINANCIAL MANAGEMENT
Objectives are the end targets for which an organization strives. In order to take rational decisions an business organization must have clear goals. The following are the goals of financial management.
1. Make sure required fund for the smooth running of business organization.
2. Ensure proper return on investment to stake holders of the organization.
3. Ensure effective utilization of funds acquired
4. Creating safe investment opportunities to investors.
THE FUNCTIONS OF FINANCE MANAGER
The following are the major functions of a finance manager:-
1. ESTIMATE THE FUND REQUIRED
Primary duty of a finance manager is to find out the fund required for a particular period of time. While calculating the required fund finance manager has to consider fund requirement of both long term and short term requirements . He has to consider the policies of the organization also.
2. FORMATION OF CAPITAL STRUCTURE
The main objective of financial management is to maximize shareholder’s wealth and minimize the cost of capital. Finance manager should analysis the debt equity in the short term and long term. This depends on the capital the firm owns and the amount need to be raised from extra source. Under this function decisions has to be made regarding the type and proportion of different source of fund.Finance manager should select suitable capital structure considering various factors.
3. EVALUATE AND SELECT SOURCE OF FUND
Many options are available to raise fund, Finance manager should select options which will provide higher earning possibility in less costs.
4. ALLOCATION OF FUND
Finance manager has to determine the fund required for each financial segment and should distribute fund accordingly.
5. DISTRIBUTION OF PROFIT
Under this function management decides whether to distribute the profit earned or retained it for future use. Management can take appropriate decisions as per their discretion considering various relevant facts.
6. FINANCIAL CONTROL
This is the one of the key activities in finance management. Finance manager has to assess whether an organization is meeting its obligations or not, any flaws in the decision will affect the overall strategy. Finance manager should consistently monitor the financial activities and should ensure its compliance with per-determined objectives.
IMPORTANCE OF FINANCE MANAGEMENT
Financial management is essential to achieve the objectives of business organization. It ensures the operational efficiency of the organization .The finance management is important due to the following reasons.
1. Financial Management help the financial planning.
2. Financial Management help to acquire fund from different source at the minimum cost.
3. Financial Management help to utilize its acquired fund effectively
4. Financial Management help to take critical financial decisions easily
5. Financial Management provide financial stability at any time
6. Financial Management help to meet contingencies of business organization.
7. Financial Management help to improve profitability
8. Financial Management help to invest fund considering the profitability
9. Financial Management help to improve shareholder’s worth
10. Financial Management help to improve overall value of the organization
11. Financial Management provide information through financial reporting
12. Financial Management makes employees aware about saving fund
