What is Financial Management? Types, Functions, Objectives.

Summary

This video script offers an insightful overview of financial management, defining its essence as the strategic oversight of an organization's financial activities. It outlines the primary objectives, such as profit maximization and ensuring shareholder returns, and delves into the functions, including capital calculation, structure determination, and fund procurement. The script also distinguishes between three key areas of financial management: capital budgeting, capital structure, and working capital management, emphasizing the importance of maintaining liquidity and sound financial planning for organizational success.

Takeaways

• 📈 Financial Management is the strategic handling of an organization's financial activities, including planning, organizing, directing, and supervising financial operations.
• 🎯 The primary objective of financial management is to maximize profits by managing costs and setting appropriate selling prices.
• 💰 Ensuring adequate returns to shareholders is crucial, which depends on the company's earning capacity, market value of shares, and shareholder expectations.
• 💧 Tracking liquidity and cash flow is essential to ensure the organization has sufficient funds to meet its operational needs.
• 🚀 Optimum utilization of funds involves deploying procured capital in the most effective way at the lowest possible cost.
• 🔒 Providing safety on investment means investing in ventures that offer an acceptable rate of return with minimal risk.
• 🏦 Planning a sound capital structure involves maintaining a balance between debt and equity capital for financial stability.
• 🔢 Functions of financial management include calculating required capital, determining capital structure, choosing sources of funds, investing capital, procuring funds, and allocating profits.
• 🏭 Capital budgeting is about deciding where to invest capital to support the company's short-term and long-term goals.
• 💼 Capital structure management involves figuring out how to finance operations and growth, considering debt, equity, and the company's financial strength or risk.
• 🔄 Working capital management focuses on maintaining sufficient liquid assets to cover short-term debts and operational costs, ensuring smooth business operations and increased earnings.

Q & A

What is the definition of financial management according to the video script?

Financial management refers to the diplomatic planning, organizing, directing, and supervising of financial undertakings in an organization. It involves applying management principles to the financial resources of an organization and plays a significant part in economic or budgetary management.

What are the various options for managing financial affairs mentioned in the script?

The options include managing finances on one's own, hiring a full-time employee, hiring a part-time accountant, or engaging a third party such as a chartered accountant who deals with all finance-associated activities.

What is the role of a finance manager in an organization?

A finance manager is appointed to control finance and manage its resources within an industry. They take all decisions related to finance at this position.

List the objectives of financial management as discussed in the video script.

The objectives include maximizing profits, securing adequate returns to shareholders, tracking liquidity and cash flow, ensuring optimum funds utilization, providing safety on investment, and planning a sound capital structure.

How does financial management ensure the organization has enough money to meet its requirements?

Financial management ensures this by tracking liquidity and cash flow, which involves monitoring the organization's cash position to ensure it can meet its short-term obligations and operational needs.

What is the significance of capital structure in financial management?

Capital structure is significant as it involves determining the composition of capital, maintaining a balance between debt and equity capital, and ensuring the organization is financially strong or not overly risky.

What are the functions of financial management as outlined in the script?

The functions include calculating the required capital, determining capital structure, choosing sources of funds, investing the capital, procuring funds, allocating profits, and financial control.

How does a financial manager decide on the type and proportion of various sources of funds?

A financial manager decides on the type and proportion of various sources of funds by figuring out the proper mix of capital and debt, and short-term and long-term capital ratio, aiming to obtain the minimum cost of capital and maximize shareholders' wealth.

What is the purpose of investing the organization's funds as part of financial management?

The purpose of investing the organization's funds is to raise more capital and earn regular returns by investing in secure and effective ventures.

What are the three types of financial management mentioned in the video script?

The three types of financial management are capital budgeting, capital structure, and working capital management.

How does working capital management help in the operational cycle of a company?

Working capital management helps by ensuring the organization maintains adequate liquid cash to meet its short-term debts and operational costs, thereby smoothing the company's operational cycle and potentially increasing earnings.