Fundamentals of Financial Management

Financial Management is the backbone of every business whether small or vast. The success or failure of a business depends upon the management of finances. However, the term ‘Financial Management’ is not limited to the procurement or allocation of money. It includes planning, organizing, controlling and directing the various activities related to finance.

Elements of Financial Management

Different elements play pivotal roles in the functioning of any management. Let’s have a brief look at the basic elements of financial management which affects its core functioning.

  1. Investment Decisions: Investment decision is the primary element of financial management. It involves decisions related to investment in current and fixed assets. It is also termed as working capital decisions and capital budgeting.
  2. Dividend Decisions: Proper distribution of profits among the shareholders and the management of the company is essential. The decisions regarding the profit division are taken by the finance manager. Usually, the dividend rate is decided for the shareholders and some profits are retained in the company for its growth.
  3. Financial Decisions: There are various circumstances under which a company would require raising of finance either from internal or external factors. Thus, the finance manager has to come up with the different decisions for raising finances depending upon the source, cost or the period of financing.
Functions of Financial Management
  1. Choice of sources of funds: There are various choices for a company when it comes to raising funds. It can either be through shares & debentures and loan from public deposits or different financial institutions.

The financial manager has to choose wisely while selecting the source of funds. He should give preference to internal sources.

  1. Management of cash: Cash management is very essential as it ensures constant working capital in the company. Various miscellaneous payments, remunerations, current liabilities, etc should usually be paid in cash by the finance manager.
  2. Disposal of Surplus: The profit earned by the company needs to be divided among the shareholders in the form of a dividend on their shares. Thus, the finance manager declares the dividend rate and after distributing the profits, the remaining part is retained by the company which is utilized for its expansion.
Objectives of Financial Management

Finance Management aims at the successful run of the business by managing the finances. There are certain objectives of financial management which are listed below:

  1. Ensure regular supply of funds in the company.
  2. Ensure optimum utilization of funds so as to gain maximum benefit in minimum cost.
  3. Ensure that the shareholders receive a regular return on their money invested. This is dependent upon the market price of the share and profit earnings of the company.
  4. Maintain a proper balance between the company’s debt and equity.

So, these were the basics of finance management. Every finance professional must be aware of these basics in order to plan and implement effective financial management in an organization. At MIT School of Distance Education (MIT-SDE), we train the future managers and impart necessary managerial skills. We offer distance MBA equivalent PGDM and PGDBA courses that are a mix of theoretical and practical approach. We also conduct webinars to build concepts and skills of the students. Our candidates are immediately absorbed in the industry after course completion.  So, if you want to enhance your employability, then pursue correspondence MBA courses from MIT-SDE.