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Objectives and Functions of Financial Management

Financial management is all about organizing, controlling and directing various activities of the organization related to finance. There are three elements of financial management required in an organization: investment decision, financial decision and dividend decision. These elements together ensure proper financial management of organizations. 

Objectives of financial management

Since finance management covers all the main function of an organization, its objectives relate to an organization’s success:

  • There must be a regular inflow and outflow of funds for the proper functioning of every activity in the organization.
  • In the availability of the funds, the amount must be used in the best possible way with minimum wastage.
  • An organization must ensure safe investment so that a high rate of return can be achieved in the invested amount.
  • The shareholders who have invested in the organization must be given high return which eventually depends upon the share’s market price, their expectations and earning capacity.
  • An organization must ensure that there is an equal balance in the firm’s debt and equity level.

It is quite necessary for an organization to achieve such objectives otherwise it is liable to bear heavy losses in no time. Finance is quite important for ensuring the growth and survival of the business in this highly competitive market. A firm with a high availability of funds and more working capital is expected to be a strong competitor to all others.

Functions of Financial Management

In the spirit of achieving the set objectives, there are a few important functions of financial management. The functions are as follows:

Estimation of capital

In regard to the capital requirements of the company, different estimations are to be made by the company’s financial manager. It entirely depends upon the future costs, programs and the expected profits of the company. Indeed, the estimations are required to be made in such a way that they increase the enterprise’s earning capacity.

Choice of funds sources

Funding is quite necessary for an organization’s survival. There are different sources from where a company can procure the funds for its growth. They are:

  • Issuing the shares and debentures.
  • Availability of different banks and financial institutions such as IDBI, SIDBI, etc.
  • A public deposit is the other source of raising loans through the company’s bonds.

The company must think wisely while choosing the source of its funds as a wrong decision can make an adverse effect on the company’s working.

Disposal of Surplus

Different decisions regarding disposal of net profit are handled by a finance manager. He can go for a dividend declaration. In this process, the disposal of profits are done as dividend or bonus to the shareholders of the company and employees while retaining the profits for future use. Clearly, finance management is integral to the success of an organization. That is why all companies hire finance managers and pay them a decent sum. If you are looking to make your career as a finance manager, then you can pursue management courses offered by MIT School of Distance Education (MIT-SDE). The institute offers 18-month PGDM and 24-month PGDBA in Financial Management to train future financial managers. By virtue of being distance educational courses, these facilitate learners to pursue them according to their schedule. So, apply for admissions at MIT-SDE and enhance your skills.