Financial management, also known as business finance or corporate finance, is a finance specialty concerned with financial decisions within a business entity. Although financial management is frequently associated with corporate finance, the principles of financial management also apply to other types of business and government entities. Financial managers are primarily concerned with investment and financing decisions made within organisations, whether they are sole proprietorships, partnerships, limited liability companies, corporations, or governmental entities.
We are concerned with the use of funds in investment choices buying, holding, or selling of all types of assets: Should a company buy a new machine? Should a company launch a new product line? Should the old manufacturing facility be sold? Purchase another company? Build a manufacturing facility? Maintain a higher inventory level?
Financing decisions are concerned with obtaining funds for long-term investing and financing day-to-day operations. Should financial managers use profits generated by the company’s revenues or distribute them to the owners? Should financial managers seek funds from sources other than the company? The operations and investments of a company can be financed from outside the company by incurring debt (such as through bank loans or the sale of bonds) or by selling ownership interests. Financing decisions are critical because each method of financing imposes different obligations on the business. The dividend decision, which involves how much of a company’s profit should be retained and how much should be distributed to owners, is also part of the financing decision.
The financial strategic plan of a company is a framework for achieving its goal of maximising owner wealth. Implementing the strategic plan necessitates both long-term and short-term financial planning that integrates sales forecasts with financing and investment decisions. Budgets are used to manage the information used in this planning, and performance measures are used to assess progress toward strategic goals.
A company’s capital structure is the mix of debt and equity that management chooses to raise to finance the company’s assets. There are several economic theories about how a company should be financed and whether there is an optimal capital structure (one that maximises a company’s value).
The financial manager’s investment decisions involve the long-term commitment of a company’s scarce resources in long-term investments. These are referred to as capital budgeting decisions. These decisions play a significant role in determining the success of a business. Although there are routine capitals budgeting decisions that do not change a company’s course or risk, there are also strategic capital budgeting decisions that affect a company’s future market position in its current product lines or allow it to expand into new product lines in the future.
A financial manager must also make decisions about the current assets of the company. Current assets are those that can be converted into cash within one operating cycle or one year, whichever is shorter. Current assets include cash, marketable securities, accounts receivable, and inventories, and they help a company make long-term investment decisions.
Risk management is a process that involves identifying, analyzing, and addressing risks. It is typically comprised of four main steps or processes:
Risk identification: This involves identifying the risks that an organization faces, such as financial risks, operational risks, or strategic risks.
Risk assessment: This involves analyzing the potential impact and likelihood of identified risks.
Risk control: This involves implementing measures to mitigate or eliminate identified risks.
Risk monitoring and review: This involves regularly reviewing the effectiveness of risk management processes and adjusting them as needed.
By following these four steps, organizations can effectively manage risks and make informed decisions about how to allocate resources and address potential threats to their operations.
The traditional risk management process focuses on managing the risks of only parts of the business (products, departments, or divisions), ignoring the implications for the company’s value. Large corporations now practise some form of enterprise risk management, which is risk management applied to the company as a whole. Enterprise risk management enables management to align the risk appetite and strategies across the organisation, improve the quality of the organization’s risk response decisions, identify and manage risks across the organisation.
what is the importance of financial management ?
Empowers organisations in their financial planning
Assists organisations with funding planning and acquisition.
Enhance organisations in making effective use of and allocating funds received or acquired.
Helps organisations make critical financial decisions
Helps in increasing organisational profitability
Increases the firm’s or organization’s overall value
brings about economic stability
Promotes employees’ financial saving, which aids in their personal financial planning.
Best Career Options for Financial Management Students
CORPORATE FINANCE
Every company entity has a finance department that handles all financial tasks. Job positions in functional areas including accounting, taxation, auditing, budgeting, and finance control are provided by these functions. A professional with strong work ethics, strong analytical abilities, and knowledge of financial modeling can pursue a career in corporate treasury management.
FINTECH
Fintech refers to the extensive use of modern technology in all aspects of finance. There is a great need for specialists in the BFSI business, particularly in the field of Fintech and other developing technologies in finance, as a result of the integration of technology into banking. These employment options include positions in cognitive technology, robotic process automation, block chain, and payment gateway specialists.
INVESTMENT BANKER AND CREDIT RISK ANALYST
The main responsibilities of an investment banker are to evaluate and offer investment possibilities, perform research and appraisals for the purpose of closing financial deals. The execution of both long- and short-term financial strategies, as well as the identification of new business prospects, require the expertise of an investment banker.
The primary duty that necessitates specialized domain expertise is determining the creditworthiness of current or potential customers for the business. To assess the level of risk, you will look at the prospective clients’ financial dealings and credit history.
THE MANAGEMENT OF RISK AND INSURANCE
The uncertain cruel nature of the pandemic has increased the requirement for assurance and security. The nation’s thriving insurance industry offers a range of positions, from data scientists and marketers to actuaries and analysts.
Technology has advanced to the point that knowledge of new technologies like artificial intelligence (AI) and machine learning (ML) is now required in the field and has created many new career opportunities. Opportunities exist in the insurance industry for actuaries, advisers, marketing experts, customer service agents, and human resource specialists.