The Scope of Financial Management in 2018
Financial management is the field of efficient management of money in a way that it achieves the objectives of the organization or the individual. There are many professionals who specialise in this field. These finance professionals are trained in financial management. You can start gaining knowledge of this field by enrolling anywhere for a financial management course in India or abroad. There are many online portals where you can study financial management remotely.
The scope of financial management includes the following aspects –
- Investment Decision Making –
The decision to invest in any financial instrument involves the evaluation of risk in that investment. It also involves measuring the cost of capital and the estimation of the benefits that one might get from investing in a project. Investment decision involves two elements. Capital budgeting and liquidity. Capital budgeting means allocation of capital and commitment of funds in those permanent funds which can give earnings in the future. It also deals with re-investment of old assets. A finance manager’s job is to maintain a balance between fixed and current assets so that it can maximise profitability.
- Financing Decision Making –
Financing decision deals with the decision regarding the mix of finances of the company. It requires decisions regarding the sources of finance and the choice of sources. A finance manager should develop a good mix for his company to maximize the long-term market price of a company’s shares. He should maintain a good balance between debt and equity so that the shareholders get high return on equity along with low risk.
- Dividends Related Decision Making –
The dividend decisions revolve around development of a dividend policy that suits the needs of the organization. The object of a firm is wealth maximization, and an aspect of dividend policy is to ascertain whether an organization should distribute its profits at one go or only a part of it at once and retain the balance. The finance manager has to look into the investments that a firm can make. He should plan for expansion and growth of the organization. He also needs to ensure the stability of the dividend policy.
- Working Capital Decision Making –
The working capital decision is about the investment in current assets and liabilities. It includes the cash of the company, its inventory etc. Liabilities can be in the form of bills, creditors etc. Current assets can be encashed within a year and current liabilities can mature for payment within a year.
In order to plan a good financial year in 2018, organizations and individuals should plan for sound financial management. There are several ways to ensure this. Some of them are mentioned below –
- Invest in smart systems
Financial management decisions as mentioned above can get repetitive. It is important to get a fresh outlook from time to time. It helps a financial manager in planning investments and financing wisely. By employing a sound financial management system, an organization will be able to pace up with the changing opportunities around them. Cloud-based technology and state of the art apps allow to take care of mundane financial operations so that a finance manager can devote more time on other crucial financial decisions.
The above mentioned smart systems can be integrated in the workflow of an organization and provide ways of managing operational tasks such as payroll, invoicing, inventory management, claims, financial reconciliation etc. It is secure and accessible at anytime from anywhere. They also allow automatic extraction of large amounts of data that helps in saving time.
- Cash Flow Forecasting
Every finance manager should do a forecast for cash flows of his organization. Cash flow forecasts can be done for the next year at the beginning of a year. The basis for estimation can be the previous year’s cash flow data. It helps in planning for the year, identify any short falls observed and assist in the annual budgeting plan.
- Financial Review
Financial analysis of the year gone by, benchmarking and management reporting are critical to evaluation of a company’s financial performance. The past performance will throw light on the opportunities for improvement in the future. There are many online tools available for financial review. Using those tools, a finance manager can get a proper evaluation done for his firm. These tools allow for a user-friendly means to create reports for senior management, access key financial data as required as well as track and monitor key performance indicators of a business, for example profitability, growth etc.
Financial management involves a 360-degree plan to overcome any shortcomings in a financial plan, give a overview of a company’s assets and liabilities and plan for the future. Every organization needs to have a sound financial management strategy as the ultimate aim of any business is wealth creation.
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