FINANCIAL MANAGEMENT | DEFINITION AND ITS IMPORTANT ROLE

What is Financial Management? Financial management is bothered with the attainment, financing, and management of assets with some on the whole goal in mind. So the option carries out of economic management may be lessened into three major areas: the investment, financing, and asset management.

ROLE OF FINANCIAL MANAGEMENT

The important role of financial management are discussed as under;-

INVESTMENT DECISION   

 The investment decision is that the most significant of the firm’s three major choices once it involves price creation. It begins with a determination of the whole quantity of assets required to be controlled by the firm. Image the firm’s record in your mind for an instant Imagine liabilities and Owner’ equity being listed on the proper facet of the record and its assets on the left. The monetary manager must verify the dollar quantity that seems higher than a facet of the record that the scale of the firm. Even composition of the assets should still be determined. For instance, assets ought to be dedicated to money or to inventory? conjointly the flip facet of investment withdrawal should not be unnoticed. Assets that may not be economically even may have to be reduced, eliminated, or replaced.

FINANCING DECISION

The second major call of the firm is that the financing decision. Here the monetary manager is bothered with the makeup of the right-hand face of the record. If you consider the combo of funding for companies across industries, you may see marked variations. Some companies have comparatively giant amounts of debt, whereas others are virtually debt free will the kind of funding utilized create a difference? If so why and, in some sense, will an explicit mixture of funding be thought of as best?

 Additionally, dividend policy should be viewed as an integral a part of the firm’s funding decision. The dividend-payout magnitude relation determines the quantity of earnings that may be maintained within the firm retentive a bigger amount of current earnings within the firm implies that fewer greenbacks are accessible for current dividend payments. The worth of the dividends paid to stockholders should thus be balanced against the chance value of maintained earnings lost as a method of equity funding.

Once the combo of funding has been determined, the monetary manager should still verify best to physically acquire the required funds. The mechanics of obtaining a short loan, stepping into a semi-permanent lease arrangement, or negotiating a purchase of bonds or stock should be understood.

ASSET MANAGEMENT DECISION

The third vital call of the firm is that the Asset management decision. Once assets are no heritable and applicable funding provided, these assets should still be managed expeditiously. The monetary manager is charged with variable degrees of operational responsibility for existing assets. These responsibilities need that the monetary manager is additionally involved with the management of current assets than therewith of fastened assets. An oversized share of the responsibility for the management of fastened assets would reside with the operational managers an agency use these assets.