Re: NATURE OF FINANCIAL MANAGEMENT -
May 22nd, 2015
Financial management uplift the control over the incoming and outgoing of the money, I know the wording sounded like airtel mobile phone , but surely after reading these post got some idea about,what is the financial management , so i was curious and regarding that, i found some information related to it's scope and for a while i stare at my computer screen, Why? Check it out.
The scope of financial management includes three groups. First – relating to finance and cash, second – rising of fund and their administration, third – along with the activities of rising funds, these are part and parcel of total management, Isra Salomon felt that in view of funds utilisation third group has wider scope.
It can be said that all activities done by a finance officer are under the purview of financial management. But the activities of these officers change from firm to firm, it become difficult to say the scope of finance. Financial management plays two main roles, one – participating in funds utilisation and controlling productivity, two – Identifying the requirements of funds and selecting the sources for those funds. Liquidity, profitability and management are the functions of financial management. Let us know very briefly about them.
Liquidity can be ascertained through the three important considerations.
i) Forecasting of cash flow:
Cash inflows and outflows should be equalized for the purpose of liquidity.
ii) Rising of funds:
Finance manager should try to identify the requirements and increase of funds.
iii) Managing the flow of internal funds:
Liquidity at higher degree can be maintained by keeping accounts in many banks. Then there will be no need to depend on external loans.
While ascertaining the profitability the following aspects should be taken into consideration:
1) Cost of control:
For the purpose of controlling costs, various activities of the firm should be analyzed through proper cost accounting system,
Pricing policy has great importance in deciding sales level in company’s marketing. Pricing policy should be evolved in such a way that the image of the firm should not be affected.
iii) Forecasting of future profits:
Often estimated profits should be ascertained and assessed to strengthen the firm and to ascertain the profit levels.
iv) Measuring the cost of capital:
Each fund source has different cost of capital. As the profit of the firm is directly related to cost of capital, each cost of capital should be measured.
It is the duty of the financial manager to keep the sources of the assets in maintaining the business. Asset management plays an important role in financial management. Besides, the financial manager should see that the required sources are available for smooth running of the firm without any interruptions.
A business may fail without financial failures. Financial failures also lead to business failure. Because of this peculiar condition the responsibility of financial management increased. It can be divided into the management of long run funds and short run funds.
Long run management of funds relates to the development and extensive plans. Short run management of funds relates to the total business cycle activities. It is also the responsibility of financial management to co*ordinate different activities in the business. Thus, for the success of any firm or organization financial management is said to be a must.