Organizations needs finances to obtain physical resources: land, property and labour for their production activities; financial management
Introduction to Financial Management
Financial management is said to be an organic function of any business.
Any organization needs finances (money) to obtain physical resources like land, property and labour to carry out the production activities and other business operations, to also pay compensation to the suppliers, etc.
There are many theories around financial management:
- Some experts believe in their theory that financial management is all about providing financial resources needed by a organizations and business on terms that are most favorable, keeping its objectives in mind. Therefore, this theory concerns primarily with the procurement of financial resources (funds) which often include instruments, institutions, properties and practices to raise funds. It also takes in to account the legal relationship between an enterprise and its source of funds.
- Another set of experts believe that finance is all about cash (money). Since all business transactions involve cash, directly or indirectly, money (finance) is concerned with everything done by the businesses and organizations.
- The third and more widely accepted point of view is that fin. mgt is the procurement of funds and their effective utilization by businesses and organizations. For instance, in the case of a manufacturing firm, fin. mgt must ensure that funds are available for installing the production plant and machinery (Plant and machinery).
Nature, Significance, and Scope
Further, it must also ensure that the profits adequately compensate the costs and risks borne by the businesses and her shareholders. In a developed market, most businesses can raise capital easily, this is however, in contract to under developed markets. However, the real problem is the efficient utilization of the funds through effective financial planning and control.
Further, the business must ensure that it deals with tasks such as ensuring the availability of finances, allocating same, managing the finances, investing the monies, controlling costs, forecasting financial requirements of the company, planning profits and estimating returns on each of her investment, assessing working capital and its management, etc. The scope of Financial Management The introduction to financial management also requires you to understand the scope of financial management.
Conclusion
It is important that financial decisions take care of the shareholders interests. Further, they are upheld by the maximization of the wealth of the shareholders, which solely depends on the increase in net worth, capital invested in business, and plowed-back profits for the growth and prosperity of the organization.
