What Is Financial Management

This article covers in detail the concept of financial management. Finance is the soul of any business. It is not possible to operate any form of business without finance. The concept of financial management is very wide. The main goal of financial management is to maximize the corporate value while reducing risks in the business operation. Read on to understand the concept of financial management in detail.

The concept of Financial Management:

The concept of financial management covers segments like planning, organizing, controlling and directing all kinds of investment decisions in order to help businesses attain their goals. To help achieve these goals various tools are used. Most of these tools are for statistical and economic calculations. In other words, financial management is a method of making the best use of financial resources for the better of the organization.

Financial management is implemented across various sectors of government and non-government organizations today. This indicates the importance of financial management in today’s world. Financial management involves taking three important decisions. These are as follows:

  1. Investment decisions:

Investment decisions are the decisions which are taken with regards to investments in current assets and fixed assets. Decisions regarding efficient allocation and use of capital are considered as crucial investment decisions. Basically, Investment decisions can be categorised into two broad categories:

  • Investment in own business
  • Investment in outside business

Read more about it here.

  1. Financial decisions:

It is concerned with the borrowing and allocation of funds for Investment Decisions. There are two sources involved in financial decision using which funds can be raised – using the company’s money in the form of share capital or borrowing funds in the form of loans, debentures, etc.

  1. Dividend decision:

The dividend decision is a crucial decision that a financial manager has to take. The financial manager has to take decisions such as:

  • Should the profits made be put back into the business to finance investment decisions?
  • Should any dividend be paid? If yes, how much dividend should be paid?
  • In what forms should the dividends be paid?

These are the three important decisions that have to be taken by the financial manager. A proper risk analysis has to be done by the financial manager while performing these three functions. Steps have to be taken to understand the debt-equity leverage, currency and interest rates and other minor details in order to reduce risk. A financial manager has to always stay ahead of the curve when it comes to implementing the best practices for the interest of the company. Check this website to know about the least valued currencies in the world and get updates from the world of finance.

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