One of the most critical components of a corporation is financial management. To establish and operate a profitable business, you must be well-versed in financial management. The core objectives of financial management include maximising profits, tracking liquidity and cash flow, and ensuring adequate returns to the shareholders which will depend upon the earning capacity, the market price of the share, and the expectations of the shareholders.
Financial managers have a wide variety of tasks, and which ones they perform is heavily influenced by the type of business. A financial manager at a small firm may be responsible for the whole financial operation, but in a large corporation, a financial manager may specialise in a specific component of finance, such as financial reporting or cash management.
The quantity of capital required by an organization is calculated by a financial manager. This is determined by the company's policy about projected costs and earnings. The needed quantity must be determined in such a way that the company's earnings improve.
Once the quantity of capital has been determined, a capital structure must be established. This entails both a short-term and long-term debt-equity analysis. The structure's prognosis is determined by the quantity of capital owned by the firm and the amount that must be raised from outside sources. All this is done by a financial manager.
Every organization or business must make an investment in order to raise additional capital and earn consistent returns. This means that the financial manager must invest assets in risky but successful projects.
It is the financial manager's responsibility to efficiently allocate the organization's net profit after it has been established. This might entail preserving a portion of the net earnings for contingency, innovation, or growth reasons, while the remainder can be utilised to pay dividends to shareholders.
A financial manager is also in charge of efficiently managing the company's finances. Money is needed in the organization for a variety of reasons, including payroll and bills, maintaining inventory as applicable, and purchasing goods and/or equipment.
The financial manager must not only plan, organize, and secure cash, but also supervise and analyze the company's finances. Financial forecasting, ratio analysis, risk management, and profit and cost control are all techniques that may be used to accomplish this.
Financial management is an approach to applying general management ideas to an enterprise's financial assets. Solid financial management enables the CFO or VP of finance to provide data that supports the creation of a long-range vision, informs decisions on where to invest, and yields insights on how to fund those investments, liquidity, profitability, and more.
If funds are not handled appropriately, then an organization may face roadblocks that that are detrimental for its growth and development.
There are various possibilities for managing one's money, including handling them on one's own, hiring a full-time employee, a part-time accountant or a third party who manages all finance-related operations for you, such as a Chartered Accountant.
Typically, businesses have a separate department that handles the company's financial concerns. A financial manager is in charge of handling finance and managing an organization's resources. In this role, all financial choices are made. Depending on the corporate profile, the finance department may have many designations to adapt to the firm's diverse demands.
Objectives of Financial Management
Profit Maximization: This occurs when the organization's marginal cost matches its marginal income. This is one of the primary goals of financial management.
Wealth Maximization: Once a corporation has maximised profits, the next aim is to increase wealth for stakeholders. A good investment strategy has a tremendous impact on the firm.
Firm Survival: Effective financial management enables a company to avoid bankruptcy and remain in business, ensuring that people have employment and products and services reach the market. The basic purpose of financial management is to ensure the existence of a business.
Businesses, as the phrase implies, must survive in a competitive market, and the best method to do so is to manage their financial resources. Managers must make major judgments after doing extensive research. If necessary, they may consult with external members or agencies. Every decision matters since it has an influence on the business.
Adequate Mobilization: One of the most essential goals of the financial function is effective mobilisation. It implies that management must make judgments on how to allocate and use diverse funds. Finance managers must evaluate an organization's needs and make financial decisions appropriately, whether it is through shares or debentures.
Capital Cost Minimization: Raising capital, necessitates the payment of interest, fees and other expenses. Keeping these expenditures under control immediately helps profitability.
Cash Flow Management: While it is a short-term goal of financial management, controlling cash flow maintains money accessible for everyday needs such as purchasing raw materials to manufacture items and paying utilities and salaries. Having adequate cash on hand to pay invoices and other commitments on time is critical to the company's image and credit rating.
Determination of Capital Structure: Capital structure determines how a company finances its operations and growth through multiple sources. To do this, financial managers calculate the appropriate combination of debt and equity.
Estimation of Funds: Companies must produce the best estimate of how much money they will require to function in the short and long term.
Increased Efficiency: Proper financial management also promotes proper distribution. Mobilisation and usage of money lead to improved business decisions, from building inventory to investing in lucrative firms. This also enables managers to allocate resources and divide them around divisions, boosting an organization's overall efficiency.
Types of Financial Management Decisions
1. Dividend Decision
Dividend decisions are financial decisions made about the allocation of a company's earnings to its stockholders of dividend payments. Dividend decisions should be made with the larger aim of enhancing shareholder value in mind whenever possible.
The dividend decision, as the name indicates, comprises deciding how much profit (after tax) to distribute to shareholders as dividends and how much profit to keep in the company for future growth.
2. Investment Decision
A financial decision which is concerned with how the firm’s funds are invested in different assets is known as an investment decision. An investment decision can be long-term or short-term. A long-term investment decision is called capital budgeting decision which involves huge amounts of long term investments. An example of a capital budgeting decision would be the decision to open new stores because management must analyze the cash flows associated with the new stores in the long term.
Short-term investment decisions are called working capital decisions, which affect day to day working of a business.
3. Financing Decision
Financial analysis is the way toward analysing businesses, budgets, projects and other finance-related matters to decide their execution, suitability and performance.
Financial decisions are made in connection with a fund-raising campaign. Identifying numerous financing sources, as well as the quantity of money to be raised from long-term and short-term sources, is a part of the process.
As part of the financing decision, financial management assesses the cost of economic and capital risks related to various possibilities and then determines the proportion of funds obtained from shareholders' funds and borrowed capital. A firm can increase long-term finance in two ways: by using shareholder funds or by borrowing money.
Thinking of Pursuing a Financial Management Career Path?
Here are the job roles you can consider:
1. Public Accounting
Accounting is a broad subject of study and practice that encompasses a wide range of financial services. In general, it deals with documenting and sustaining the flow of money for a public or private entity. Public accountants also provide recommendations and provide reports to reduce spending, increase income, and enhance financial health.
Graduates of Commerce and Business Administration may choose to pursue a CPA certification in order to become globally licensed accountants. Degrees such as Master of Commerce (M.Com.) and MBA (Finance) are also accepted as proof of applicants' academic understanding in the field. Additionally, finance certifications online can help you flourish further.
2. Investment Banking
Investment banking is one of the most renowned professional paths in finance. It is also a profitable career keeping in mind the professional advancement and compensation opportunities. Investment bankers oversee financial remodelling responsibilities.
Their job is to work with data and figures to make judgments that enhance corporate operations. These professionals must be interested in and knowledgeable about financial markets and economic developments. There are plenty of finance courses in India that can help you achieve your dreams as an investment banker.
3. Portfolio Administration
Portfolio management is a synthesis of commerce and science since it necessitates a working understanding of business, maths, and analytics. As a portfolio manager, you look at the whole investment mix of your customers, who might be institutions or people, rather than individual investments.
It would also be your responsibility to lead corporate investment policy and asset allocation decisions. In portfolio management, it is critical to maximize earnings at an agreed risk. You can take up courses for financial analysts if you want a career in portfolio management.
4. Financial Risk Manager
Specialists in risk management are adept at spotting market risks and predicting poor investment results. Their major responsibility is to strategically optimize earnings while minimizing risks. They use their mathematical brilliance and analytical reasoning abilities to assist their customers with a variety of commercial concerns.
Roles in risk management include Enterprise Risk Managers, Supply Chain Risk Managers, Operational Risk Managers, and Digital Risk Managers.
5. Banking for Business
Commercial banks offer a wide range of services to both consumers and corporations. Savings and current account facilities, debit and credit cards, and personal, housing, education and other loans are all available. Commercial banking also comprises financial statement analysis, competitive positioning, and industry analysis.
In the banking business, there are several sorts of positions, each needing a unique set of skills. Credit analyst, bank teller, account manager, mortgage banker, banking associate, trust officer, and branch manager are the most prevalent jobs.
What Are The Skills Needed to Pursue Financial Management?
- Analytical and Strategic Abilities
Accounting software and programs have made it possible for accountants and finance managers to devote more time and attention to employing data analysis and financial analysis to assist their firms or customers expand through strategic decision-making, budgeting, and making the proper financial investments.
It is simple to understand why adaptability is a valuable trait in financial management. With the industry's ever-changing nature, the advising position that many accountants must assume and the ongoing improvements in technology, financial leaders must think and operate on their feet. When necessary, they must be willing to alter and adapt to new conditions.
- Leadership Abilities
At a higher level, finance managers will most likely be in charge of a team of accountants or financial officers. This implies that as financial officers advance in their careers, they must consider what kind of leader they want to be and enhance their managing abilities.
There are plenty of financial management jobs for freshers in India. The average finance manager's remuneration is INR 9.93 lakh per year. The bonus for this position ranges from INR 17,000 to INR 3 lakh, with shared earnings reaching
INR 2.85 lakh each year.
Financial professionals are in high demand all around the world. Not only in India, but there are also many opportunities abroad for individuals wanting a broader experience.
Working abroad might be the right alternative for you if you are looking for a new adventure, want to expand your CV, or your job needs a change of pace. Your career in finance can easily lead you there.
If you want to work in finance and are looking for industry-focused fintech courses in India, then Hero Vired's Financial Analysis, Valuation, and Risk Management will provide you with the industry-specific skills you need to get started.