Importance of Financial Management
Financial Management is vital for the financial health of a business. A firm's financial health and financial position are selected by the income statement and loss account) and position statement (Balance sheet). These statements are allected directly or indirectly by some financial decisions that underline the Importance of Financial Management. The following decisions are the outcome of Millicent's Financial Management.
1. Decision about the size and composition of fixed assets of the business-
It is the capital budget that decides what amount is required to be invested in fixed assets. The larger the bunnies, the higher will de the requirement of funds for fixed assets
2. Decision about the quantum of current assets and their break up Into cash, inventory, and receivables-
There is a positive. Completion between an Increase in foxed amets and an Increase in working capital requirement. Financial Morgensen decisions essentially influence the Chatham of current sets. At the same time, decisions about credit and inventory management also collect the amount of develops and inventory, which compose the total cunent arts and their composition.
3. Decision for Long-Term and Short-Term Funds-
Financial Management has to decide the proportion of long-term and short-term hands to be used. If an organization needs mone liquid assets, it will have to mie mone amount long-term recently. There is a choice between liquidity and profitability. There is a general assumption of an enterprise that current liabilities cont less than long-term liabilities.
4. Decision for Break-up of Long-Term Financing-
Find Management's major decision relates to the proportions of the long men Finance for debt and equity to be used. The amount of debt, severe equity capital, and preference share capital are selected by the Financial decision, essential for financial Management.
5. Decision for all Items in the Statement of Profit and Loss-
The statement of profit and loss contains various dilemmas such as interest, operating expenses, depreciation, etc.; the amount of debt is higher, the good, even in the future, will also be higher. Similar, the more is the use of equine, the higher will be the payment of dividends. Besides, when the expansion of business is made, it affects the capital budget. Thus, all items of the statement of profit and loss are affected. Financial Management has to consider them rationally.
In the same way, the future financial statements would depend upon both past and current economic decisions. It is the quality of financial management that determines the health of a business. Good financial Management aims to mobilize financial resources at a lower cost and deploy them in the most lucrative activities.
FUNCTIONS OF FINANCIAL MANAGEMENT
Determination of the requirements of funds Allocation of funds Raising capital from various sources Management of earnings financial Appraisal of financial performance Management of assets Financial Planning Financial control Advisory functions Preparation of Accounts. and Audit Other functions such
Meaning of Financial Decisions
Financial Management is closely concerned with the solution of three primary issues about the financial operations of an enterprise- ( i ) investment, ( ii ) financing, and ( iii ) dividend. In other words, financial Management broadly takes decisions about these three matters, from the long-term point of view and short-term point of view, both considering all the aspects of overall progress and prospects. We shall discuss each of them in detail.
You must be logged in to post a comment.