Financial Management objectives are concerned with the management of all the finances of a company. This includes monitoring, protecting, controlling, and reporting all the financial resources of the company. A financial manager deals with the total assets of the company, sees its liabilities and expenses, and works to make considerable business gains.
Financial Management is a comprehensive sphere. Thus, its prime objectives include profit and wealth maximization, maintenance of liquidity, utilisation of funds, building reserves, reducing risk, fulfilling financial commitments, cutting down financial costs, balance structures, measuring success, business survival, and many more. Let us know some of the major financial management objectives in this article.
What is Financial Management Objectives?
Financial Management is a business function concerned with the financial resources of a company and its management thereof. Companies hire financial managers in different roles to manage their finances, expenses, cash and credit, loans, debts, and investments, and look for prospective ways to make reasonable monetary gains.
There are four major elements in financial management. These include:
- Planning
- Controlling
- Organising and Directing
- Decision Making
Following these elements, a financial decision is made. The most crucial functions of financial management are the assessment of required capital, selection of fund resources, capital structure, acquiring finances and making efficient use of them, management of excess funds, cash management, financial oversight, etc.
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Financial Management Objectives: Key Takeaways
- Financial Management deals with all the financial resources of a company intending to shoot up the value of the firm and the shareholders’s share value.
- Thus, the fundamental objective of financial management is to maximize profits and minimise costs.
- Other major scopes of financial management incorporate the maintenance of liquidity, reducing risks, cutting down financial costs, building reserves, survival of business and profitability, etc.
What is the significance of Financial Management?
The role of financial management in business is in the planning, controlling, directing, and organising of the financial resources of a company. Well-done financial management provides the company with financial data that can be utilised in preparing a long-term plan for a successful business.
Financial Management guides the company in its investment decisions, and finance management, both expenses and earnings, and provides insights on the company’s profitability ratios, liquidity, etc. In both short-term and long-term. Financial management plays a major role in running a profitable business or company.
What are the major objectives of Financial Management?
The basic financial management objectives is to look for ways and such decisions that prove fruitful in maximising the wealth of shareholders and increasing the market value of the company. Besides, there are several other objectives of financial management. You must be familiar with these objectives.
- Profit and Wealth Maximization
Any business runs intending to make huge monetary gains. Thus, this is the most important objective of financial management. Funds and resources of a company are managed in such a way that favours the profitability of the company.
Wealth maximization is concerned with tapping those financial resources that are untapped. It is a modern approach when compared to profit maximization. Wealth maximization deals with maximizing the share value or wealth of shareholders as it considers them as real owners of the company.
- Organizational Effectiveness
Financial management facilitates the organizational effectiveness of a company as it provides all the necessary financial data required to make appropriate and profitable decisions. This adheres to the organisation in making the best possible use of the available resources.
- Maintenance of Liquidity
Another important objective of financial management is the maintenance of liquidity in the company, i.e.; those assets that can be exchanged for cash.
Liquidity is an important indicator of the good health of a company and facilitates meeting its short-term and long-term monetary goals. Financial management aids in the management of cash flow in the company and maintains such minimum liquidity as necessary to keep the company running in good condition.
- Improved Efficiency
Besides collective organisational efficiency, financial management facilitates departmental efficiency. It aids in improved efficiency of operations at every level of the company favouring profitable use of resources. A financial manager runs efficient operations with the help of all the financial data.
- Adequate Mobilisation of Profits and Resources
Mobilisation of profits is as important as maximizing them. Besides, resources must be mobilized well to lead them to proper utilisation for maximum returns.
Financial Management aids greatly in the mobilization of all the profits and financial resources of a company. It prepares and manages the data of assets, finances, and profits and uses or saves them as needed.
- Proper Estimation of Financial Needs
Estimation of financial needs stands among the most prominent objectives of financial management. It is a need to optimize the establishment and survivability of a company or business.
It incorporates the estimation of the funds, assets, finances, or resources needed to establish, run or meet a goal in a business. A proper estimation becomes a must for successful business transactions.
- Utilisation of Funds
Another important objective of financial management is the utilisation of funds. It includes the management of all the funds from varied sources, such as shares, loans, debts, investments, etc. Then, funds are set aside to meet expenses such as bills, downturns, credits, debts, investments, etc.
- Reduce Risks
In the day-to-day operations of a business, there are several risks involved that must be tackled well to avoid any financial setbacks. Risks often come in unforeseen situations and may arise without warning. Financial management aids in tackling these risks.
- Business Survival
The phrase “survival of the fittest” fits businesses as well as it fits species.
One needs enough money as a backup to manage any unforeseen situation, pay one’s employees and run the business to get back on track.
A financial manager manages healthy cash flow that maintains the survivability of a business.
- Balanced Structure
Financial management aids in providing a balanced capital structure to a business or company. It maintains a balance of resources and utilisation between all the assets to make use for maximum profitability.
- Optimization of Marketing Activities
Marketing plays an important role in increasing the profitability of a company and its survivability in the business market. A finance manager optimizes marketing by assessing return on investments (ROI), allocating resources, and aligning financial resources with the goals of the company.
- Determine Capital Structure
Setting a proper capital structure for the company is necessary. This can be done by aligning the capital needs of the company with its financial goals and available resources.
- Creating financial scenarios via forecasts
Financial management aids in creating and identifying favourable financial scenarios by financial forecasts. According to its financial data made via financial management, a financial manager can find profitable investment opportunities in the share market.
- Fulfilment of financial commitments with creditors
Financial management is quintessential for companies to meet their commitments to creditors. Financial management establishes trust and transparency between debtors and creditors. It favours due and timely payments to creditors.
- Measure your business success
Lastly, measurement of business success is a major objective of financial management. The prime aim of a company is to make huge profits. Thus, it can be said that a company’s success can be measured in terms of its revenue.
It is important to regularly measure one’s success to continue on the path of profitability. Financial management provides adequate data to keep an eye on the revenue and capital of the company.
Financial management provides a platform for optimum allocation of resources and management for the long-term success of a company.
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Financial Management Objectives FAQs
Q1. What is financial management?
Ans: Financial Management is a collective of services that manage the finances of a company intending to maximise its value and make considerable monetary gains. It includes the management of all expenses, debts, loans, investments, cash, credit, shares, cash flow, profitability, prospects of bankruptcy, etc.
Q2. What are the major financial management objectives?
Ans: There are several objectives of financial management. Prime objectives include wealth maximization, profit maximization, credit risk management, fund utilisation, maintenance of liquidity, improving efficiency, cutting down expenses, profitability, etc.
Q3. What is the scope of financial management?
Ans: Financial Management is a comprehensive sphere of business. Companies hire financial managers in varied roles. These include the roles of a debt manager, financial analyst, equity analyst, risk calculator, investor, banker, financial advisor, finance manager, investment manager, accountant, etc. Besides, financial managers deal with capital budgeting, compliance, credit risk, and corporate finance.
