Financial Management

Financial Management means planning, organizing, directing, and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to the financial resources of the enterprise.

Functions of Financial Management

1. Estimation of capital requirements: A finance manager has to estimate the capital requirements of the company. This will depend upon expected costs and profits and future programs and policies of a concern. Estimations have to be made in an adequate manner which increases the earning capacity of the enterprise.
2. Determination of capital composition: Once the estimation has been made, the capital structure has to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds that have to be raised from outside parties.
   
   
3. Choice of sources of funds: For additional funds to be procured, a company has many choices like-

• Issue of shares and debentures
• Loans to be taken from banks and financial institutions
• Public deposits to be drawn like in form of bonds.

Choice of factor will depend on the relative merits and demerits of each source and period of financing.

1. Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns are possible.
   
   
2. Disposal of surplus: The net profits decision has to be made by the finance manager. This can be done in two ways:

• Dividend declaration - It includes identifying the rate of dividends and other benefits like a bonus.
• Retained profits - The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company.

1. Management of cash: The finance manager has to make decisions concerning cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintenance of enough stock, purchase of raw materials, etc.
   
   
2. Financial controls: The finance manager has not only to plan, procure, and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.