What is Financial Management? - Reviews Blaster

What is Financial Management?


In this article, you are going to learn financial management topics. I have discussed what is financial management, the objectives of financial management, what financial management does or functions of financial management, and the types of financial management.

 Let’s start with the article that financial management refers to diplomatic planning organizing directing and supervising of financial undertakings in an organization. It also comprises applying management principles to the financial resources of an organization while also playing a significant part in economic or budgetary management.

What is Financial Management?

There are many options that everyone can use for managing their finances. You could manage them on your own hire a full-time employee, hire a part-time accountant, or a third party who deals with all finance-associated activities for you. For example a chartered accountant usually organizations have an assigned department that looks after the financial involves of the company a finance manager is appointed to control finance and manage its resources within an industry. They took all decisions related to finance at this position objectives of financial management.

Maximize Profits

To maximize profits by giving insights on. For example, ascending costs of raw materials might trigger a hike in the selling value.

Secure Adequate

To secure adequate returns to the shareholders which will depend upon the earning capability the market value of the share expectations of the shareholders etc

Track Liquidity

To track liquidity and cash flow to ensure the organization has enough money on hand to meet its requirements.

Ensure Optimum Funds

To ensure optimum funds utilization once the funds are procured. They should be utilized in the maximum possible way at the least cost five to provide safety on investment. That means funds should be invested in safe ventures so that they can obtain an acceptable rate of return.

Capital Structure

To plan a sound capital structure there should be a sound composition of capital so that a balance is maintained between debt and equity capital. What does financial management do or what functions of financial management the financial department of any organization has to handle numerous functions. Such as calculating the required capital the financial manager has to calculate and estimate the amount of funds an organization requires.

This depends upon the policies of the firm regarding required expenses and profits the amount expected has to be determined in such a way that the earning capability of the organization increases determining capital structure. Once the need for capital funds has been decided a decision regarding the type and proportion of various sources of funds has to be taken for this the financial manager has to figure out the proper mix of capital and debt and short-term and long-term capital ratio.

Minimum Cost

This is done to obtain the minimum cost of capital and maximize shareholders. Wealth choice of sources of funds before the exact acquisition of funds. The finance manager has to check the sources from where the funds are to be collected the management can raise finance from different sources like equity investors preference shareholders debenture holders banks and other financial associations public deposits etc. Investing capital Every organization or business requires investing money to raise more capital and earn regular returns.

Hence the financial manager needs to invest the organization’s funds in secure and effective venture procurement of funds. The financial manager has to procure the funds required for the organization. It might involve consultation with creditors and financial associations issues of prospectus etc.

Procurement of Funds

The procurement of funds is reliant not only on the cost of raising funds. But also on other aspects like the general market situations decisions of investors government policy etc.

Allocation of Profits

Allocation of profits once the organization has received a decent amount of net profit. It is the financial manager’s duty to allocate it efficiently. This could require keeping a part of the net profit for emergency innovation or expansion purposes while another part of the profit can provide rewards to the shareholders.

Financial Control

Financial control not only does the financial managers have to plan organize and get funds but he also has to manage and evaluate the firm’s finances in the short term and the long term. This can be done using some financial tools such as financial forecasting ratio, evaluation risk control, and profit and cost control.

Types of Financial Management

Now come to the types of financial management in financial management studies. There are mainly three types of financial management.

Capital Budgeting

It relates to determining what needs to happen financially for the company to reach its short-term and long-term objectives and where should capital funds be spent to support growth. These management teams are likewise answerable for raising funds and investing funds.

Capital Structure

Capital structure figuring out how to pay for operations and growth. If interest rates are reasonable taking on debt might be the best response. A company might also seek funding from a private investment company and consider selling assets like real estate or selling capital where applicable at the point. When the team refers to capital structure, they are apparently dealing with a company’s debt-to-equity ratio. Which gives an understanding of how strong an organization is financially or how risky the organization is financially.


Three working capital management of an organization deals with managing bookkeeping methods and accounting policies intended to keep track of current assets, current debts, cash flow, inventory turnover ratio, working capital ratio, and much more.

The basic task of working capital management is to assure the organization dependably keeps up adequate liquid cash to meet its short-term debts and operational cost. This is one type of financial management where the team needs to maintain working capital management to smoother the company’s operational cycle and also to increase the company’s earnings.

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