Understanding Financial Management

Meaning – It’s the branch of management that assimilates the knowledge of financial accounting and cost management. It attempts to analyze this data to evaluate the position of business or person to reach effective decision making.

So the primary focus here is assessment rather than techniques of quantification. Financial management helps to plan for the future of business or person by ensuring positive cash flows by identifying and managing risk and evaluating the asset quality.

Objectives – Some of the goals of financial management are to assist managers to interpret financial reports like income statement and balance sheets effectively. Facilitate proper allocation of business capital. Effective financial budgeting.

Help in assessing the fundraising options for long term and short term capital needs. Apply techniques and financial tools to evaluate the investment proposition, valuation of money, intangible assets and business or project as a whole. On a larger perspective it helps in judicious use of capital and selection of best alternate source of capital.

Tools There are different financial models and tools developed to evaluate time value of money, risk factors of security market, portfolio management, current value of an investment or a project, ratio analysis to assess short term and long term working capital need, tools to assess the pricing of intangible assets for correct valuation at the time of mergers and acquisitions of companies.

These are just few tools to be named in the wide arena of financial management tools and techniques.

Benefits It helps the management know if assets of the company are being utilized effectively, whether the business is secure, the decisions of business are in shareholders interest and helps the business to achieve its goal of wealth maximization. The biggest benefit is derived from its use in prudent use of capital in business.

Financial management is relatively a new discipline that’s still evolving. It helps the managers in strategic decision-making of the business unlike the other streams like financial accounting that only emphasizes in recording of financial data and checking financial frauds of the concern. Financial management helps to become better business managers and manage business better.

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