Financial Management

Financial management is managing your finances. It deals with the efficient use of cash raised from various sources so as to achieve the objectives. An effective management of the finances requires a clear evaluation of the risks involved, an effective planning of the resources and an efficient control.

Objectives
The objectives of financial management can be classified into:

1. Profit maximization
2. Wealth maximization

While profit maximization objective is to maximize the profits of the firm, the wealth maximization objective is to maximize the shareholders wealth. The objective thus is to maximize the value of the wealth which is represented by market value of the firm. Thus the management has to look into the earning per share of the stocks, the risks associated with the markets and the project undertaken, the various sources through which the funds can be raised and all such factors that affect the market prices of the shares.

The financial management consists of three steps:

1. Financial planning
2. Taking the financial decisions
3. Monitoring and control of the financial plans

The planning process involves laying down the objectives. Then searching for the various sources through which the funds can be raised. The finances can be raised from the short term, medium term and the long term sources. the short term sources are preferred for meeting the short term requirement like for the inventories, payment of the bills, salaries to the employees, rent payment and the likes. The medium and the long term sources are for raising finance for fueling the projects for the acquisition or the expansion of the business, laying down of the new plant or to arrange equipments for the business. The financial planners lay down the master budget and according to this budget other budgets are prepared so as to meet the financial requirement of different departments.

The decision making involves appraising the different projects on the basis of their profitability and the returns they will give in the future. The decision involve taking decisions related to the investments that are to be made, analyzing the various sources of the financing and their effect on the business in the long term, and also about the dividends that will be distributed to the shareholders.

Financial controls involves laying down of the benchmarks and comparing the plan with them, find whether the assets and the funds are sufficient and whether they are used properly, finding any shortfalls and taking measures to overcome these shortcomings.