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.

Outlines

00:00

💼 Introduction to Financial Management

This paragraph introduces the concept of financial management as the strategic planning, organizing, directing, and supervising of financial activities within an organization. It emphasizes the application of management principles to financial resources and the role of financial management in economic decision-making. The paragraph outlines various options for managing finances, such as self-management, hiring a full-time employee, part-time accountant, or outsourcing to a chartered accountant. It also highlights the importance of a finance manager in making critical financial decisions and the objectives of financial management, which include maximizing profits, securing returns for shareholders, ensuring liquidity and cash flow, optimizing fund utilization, ensuring safety of investments, and planning a sound capital structure.

05:02

📊 Functions and Types of Financial Management

This paragraph delves into the specific functions of financial management within an organization, such as calculating required capital, determining capital structure, choosing sources of funds, investing capital, procuring funds, and allocating profits. It also discusses the importance of financial control, which involves managing and evaluating the firm's finances using tools like financial forecasting, ratio evaluation, risk control, and profit and cost control. The paragraph concludes by outlining the three main types of financial management: capital budgeting, which focuses on financial planning for short-term and long-term objectives; capital structure, which involves managing the company's debt to equity ratio; and working capital management, which ensures the organization maintains adequate liquidity to meet short-term debts and operational costs. The paragraph invites viewers to access more detailed information through a provided link and encourages engagement with the content by liking, sharing, and subscribing.

Keywords

💡Financial Management

Financial Management is the process of planning, organizing, directing, and supervising the financial activities of an organization. It is central to the video's theme as it encompasses the application of management principles to financial resources, aiming to maximize the value of the organization. The script discusses various aspects of financial management, such as its objectives, functions, and types, illustrating its importance in economic and budgetary management.

💡Objectives of Financial Management

The term refers to the goals that financial management aims to achieve, such as maximizing profits, securing returns for shareholders, and ensuring the efficient use of funds. The script outlines six specific objectives, which provide insights into the strategic direction and priorities of financial management within an organization.

💡Functions of Financial Management

This concept describes the various tasks and responsibilities that fall under the purview of financial management. The script mentions functions such as calculating required capital, determining capital structure, choosing sources of funds, investing capital, procuring funds, and allocating profits. These functions are integral to the operation and success of an organization's financial health.

💡Capital Budgeting

Capital Budgeting is a type of financial management that focuses on long-term investments and the allocation of capital to support a company's growth. The script explains that it involves decisions on where to spend capital funds and the responsibility of raising and investing those funds, which is crucial for achieving both short-term and long-term objectives.

💡Capital Structure

Capital Structure refers to the composition of a company's equity and debt, and how it is financed. The script discusses the importance of maintaining a balance between debt and equity to ensure the financial stability and risk profile of an organization. It is a critical aspect of financial management that impacts the cost of capital and shareholder wealth.

💡Working Capital Management

Working Capital Management is concerned with managing a company's current assets and current liabilities to ensure it has sufficient liquidity to meet its short-term obligations. The script highlights tasks such as tracking cash flow, inventory turnover, and maintaining an adequate level of working capital, which are essential for the smooth operation of the company's day-to-day activities.

💡Financial Forecasting

Financial Forecasting is a tool used within financial management to predict future financial performance based on historical data and trends. The script mentions it as a method for evaluating and controlling a firm's finances over both the short and long term, helping to identify potential risks and opportunities.

💡Ratio Evaluation

Ratio Evaluation involves analyzing financial ratios to assess a company's performance and financial health. The script does not explicitly define this term but implies its use in financial control, where ratios such as liquidity, profitability, and efficiency ratios provide insights into various aspects of the company's operations.

💡Risk Control

Risk Control is the process of identifying, assessing, and managing potential risks that could impact a company's financial stability. The script touches on this concept in the context of financial control, where risk management is crucial for protecting the company's investments and ensuring the safety of its capital.

💡Profit and Cost Control

Profit and Cost Control are strategies used to manage and optimize a company's profitability and cost structure. The script suggests that financial managers use tools for profit and cost control as part of their financial control responsibilities, aiming to increase earnings and efficiency.

💡Financial Control

Financial Control is the process of managing and evaluating a company's financial performance to ensure it meets its goals and objectives. The script describes it as a function of financial management that involves planning, organizing, and monitoring the financial activities of an organization, which is essential for maintaining financial health and achieving strategic goals.

Highlights

Financial management involves planning, organizing, directing, and supervising financial activities within an organization.

It applies management principles to financial resources and plays a key role in economic and budgetary management.

Options for managing finances include self-management, hiring a full-time or part-time accountant, or outsourcing to a third party.

Organizations typically have a finance department managed by a finance manager responsible for financial decisions.

The primary objective of financial management is to maximize profits by managing costs and selling prices.

Ensuring adequate returns to shareholders based on earning capability and market value is crucial.

Tracking liquidity and cash flow is essential to meet the organization's financial requirements.

Optimum utilization of funds is necessary to ensure maximum efficiency at the least cost.

Investing funds in safe ventures is important to provide safety on investment and acceptable returns.

Planning a sound capital structure involves maintaining a balance between debt and equity capital.

Financial management functions include calculating required capital, determining capital structure, and choosing sources of funds.

Investing capital in secure and effective ventures is a key responsibility of the financial manager.

Procurement of funds involves consultation with creditors, financial associations, and issuing prospectuses.

Allocating profits efficiently includes setting aside funds for emergencies, innovation, or expansion.

Financial control involves managing and evaluating the firm's finances using tools like forecasting and risk control.

Capital budgeting is about determining financial needs for short-term and long-term company objectives.

Capital structure management involves deciding how to finance operations and growth, including debt and equity.

Working capital management focuses on maintaining adequate liquidity to meet short-term debts and operational costs.

The video offers a detailed explanation and a PDF download for further reading on financial management topics.

Transcripts

in this video you are going to learn

financial management

topics i have discussed are what is

financial management

objectives of financial management what

does a financial management do or

functions of financial management and

types of financial management

let's start the video

financial management refers to the

diplomatic planning organizing directing

and supervising of financial

undertakings in an organization

it also comprises applying management

principles to the financial resources of

an organization while also playing a

significant part in economic or

budgetary management

there are many options that everyone can

use for managing their finances this

could manage them on your own hire a

full-time employee hire a part-time

accountant or a third party who deals

with all finance associated activities

for you

for example a chartered accountant

usually organizations have an assigned

department that looks after the

financial involves of the company

a finance manager is appointed to

control finance and manage its resources

within an industry

they took all decisions related to

finance at this position

objectives of financial management

1.

to maximize profits by giving insights

on for example ascending costs of raw

materials that might trigger a hike in

the selling value

2.

to secure adequate returns to the

shareholders which will depend upon the

earning capability the market value of

the share expectations of the

shareholders etc

3.

to track liquidity and cash flow to

ensure the organization has enough money

on hand to meet its requirements

4.

to ensure optimum funds utilization

once the funds are procured they should

be utilized in the maximum possible way

at the least cost

five

to provide safety on investment that

means funds should be invested in safe

ventures so that they can obtain an

acceptable rate of return

[Music]

6.

to plan a sound capital structure there

should be a sound composition of capital

so that a balance is maintained between

debt and equity capital

what does a financial management do

or functions of financial management

the financial department of any

organization has to handle numerous

functions such as calculating the

required capital

the financial manager has to calculate

and estimate the amount of funds an

organization requires

this depends upon the policies of the

firm regarding required expenses and

profits

the amount expected has to be determined

in such a way that the earning

capability of the organization increases

determining capital structure

once the need for capital funds has been

decided a decision regarding the type

and proportion of various sources of

funds has to be taken

for this the financial manager has to

figure out the proper mix of capital and

debt and short-term and long-term

capital ratio

this is done to obtain the minimum cost

of capital and maximize shareholders

wealth

choice of sources of fund

before the exact acquisition of funds

the finance manager has to check the

sources from where the funds are to be

collected

the management can raise finance from

different sources like equity investors

preference shareholders debenture

holders banks and other financial

associations public deposits etc

investing the capital

every organization or business requires

investing money to raise more capital

and earn regular returns

hence the financial manager needs to

invest the organization's funds in

secure and effective ventures

procurement of funds

the financial manager has to procure the

funds required for the organization

it might involve consultation with

creditors and financial associations

issue of prospectus etc

the procurement of funds is reliant not

only on the cost of raising funds but

also on other aspects like the general

market situations decisions of investors

government policy etc

allocation of profits

once the organization has received a

decent amount of net profit it is the

financial managers duty to allocate it

efficiently this could require keeping a

part of the net profit for an emergency

innovation or expansion purposes while

another part of the profit can provide

rewards to the shareholders

[Music]

financial control

not only does the financial managers

have to plan organize and get funds but

he also has to manage and evaluate the

firm's finances in the short term and

the long term

this can be done using some financial

tools such as financial forecasting

ratio evaluation risk control and profit

and cost control

now come to the types of financial

management

in financial management studies there

are mainly three types of financial

management

1.

capital budgeting

it relates to determining what needs to

happen financially for the company to

reach its short-term and long-term

objectives

where should capital funds be spent to

support growth

these management teams are likewise

answerable for raising funds and

investing funds

2.

capital structure

figuring out how to pay for operations

and growth

if interest rates are reasonable taking

on debt might be the best response

a company might also seek funding from a

private investment company consider

selling assets like real estate or

selling capital where applicable

at the point when the team refers to

capital structure they are apparently

dealing with a company's debt to equity

ratio which gives an understanding of

how strong an organization is

financially or how risky the

organization is financially

three

working capital management

working capital management of an

organization deals with managing

bookkeeping methods and accounting

policies intended to keep track of

current assets current debts cash flow

inventory turnover ratio working capital

ratio and much more

the basic task of working capital

management is to assure the organization

dependably keeps up adequate liquid cash

to meet its short-term debts and

operational cost

this is one type of financial management

where the team needs to maintain working

capital management to smoother the

company's operational cycle and also to

increase the company's earnings

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the description

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