Unlock the Future Scope and Importance of Financial Management In 2023

Finance is one of the most critical aspects of a business. It ensures that the financial needs of a company are fulfilled. Therefore, businesses must prioritise good financial management to grow and draw successful outcomes.

In this article, we will explore the meaning, importance, and scope of financial management.

What is Financial Management?

Financial management or FM is a strategic and tactical business function involving planning, organising, and controlling a company’s financial undertakings and transactions. It (FM) aims to maximise profit and reduce the company’s money usage.

The main objective of financial management professionals is to manage the company’s finances. They are also responsible for ensuring positive cash flow, optimum utilisation of funds, timely payment of dividends to shareholders, and expanding investment opportunities for the business.

Key takeaways:

• FM is defined as the application of management principles for managing a company’s finances
• FM comprises three main components- investment decisions, investor decisions, and dividends
• The role of FM professional in a company varies from obtaining resources to paying the supplier

What is the Scope of Financial Management?

The below-mentioned factors underline the scope of financial management in different lines of business.

1. Investment Decisions

Financial managers are responsible for choosing the right investment choices for the business.

There are two types of investment decisions, namely, long-term and short-term. Long-term investment decisions include capital budgeting. Capital budgeting is a process which includes the company’s decision to invest in fixed assets.

On the other hand, short-term investment decisions include the company’s funds invested in current assets. Therefore, financial management includes decisions like inventory planning, bank deposits, and other short-term investments.

2. Financing Decisions

Another critical business decision that comes under the scope of financial management is the financing decision. Finance management is responsible for two different types of financing decisions- financial planning decisions and capital structure decisions.

Financial planning decisions include identifying the sources of income and investing in them to increase the companies’ fixed assets. On the other hand, capital structure decision identifies various sources of fund.

Financial managers play a vital role in this business decision- from finding investors for continuous funding to designing the capital structure, they do all the roles and responsibilities of financial planning and execution.

3. Dividend Decisions

Financial managers decide the profit distribution model of the company. They decide whether the shareholders will get their profits through dividends or retained profits.

Finance management’s scope is not limited to paying out dividends. It (FM) also plays a critical role in making decisions related to a company’s profit. For instance, FM is responsible for determining what percentage of profit should be considered as retained earnings.

Note: Retained earnings are a part of the company’s cumulative profit that is saved for the future.

4. Liquidity Decisions

Liquidity is the availability of assets that can be easily converted into cash. Finance managers consciously make investment decisions to ensure that the company’s assets can be liquidated and profitable in any market condition.

What is the importance of Financial Management?

• Profit maximisation: Financial management’s primary function is to achieve profit, in the long and short run. It includes activities like wealth maximisation, increasing shareholder value, and more.
• Judicious use of funds: Financial management ensures that the company’s cumulative profit is invested correctly. This function ensures consistent business performance and survival in the market.
• Making a financial decision: Financial management helps make sound financial decisions. It indirectly increases the profit and sales figures of the organisation.
• Increases profitability: Financial management brings a standardised system for recording, accessing, and monitoring financial transactions.

By now, you must have understood that financial management professionals work towards improving an organisation’s financial health. They maintain financial reports, budgeting statements, and business forecasts.

If you are planning to make a career in financial management, you will need to have a strong hold on money management. Besides having excellent knowledge of portfolio management, share markets, and business management, you will need good interpersonal, problem-solving, and critical thinking skills.

These skills can be acquired by pursuing advanced professional learning programmes in finance management.

Emeritus offers some of the best finance certification courses in association with renowned institutes like IIM, IIT, and ISB. Our programmes are designed for fresh graduates and working professionals. Joining our courses will skyrocket your career to new heights.

Frequently Asked Questions

1. What is the Primary Goal of Financial Management?

The primary goal of financial management is to manage an organisation’s finance. Besides that, FM is also responsible for creating financial disciple in a company, making decisions regarding investments, and ensuring the availability of funds when needed.

2. Is Financial Management A Good Career Alternative?

If you are resilient and passionate about finance, portfolio, and the share market, financial management is the right career path for you. However, breaking into the industry isn’t easy and entry-level positions have low salaries. To secure a strong six-figure salary job you will need good work experience.

3. Who Can Become A Financial Management Professional?

Anyone with a bachelor’s degree in financial management or a related field can build a successful career in financial management. However, to get a higher salary package and exciting work opportunities, you will need to pursue a master’s degree in financial management or a related field. You can also take up financial management certificate courses to enhance your career.