OMTEX CLASSES: 1. Role and Function of Financial Management?

1. Role and Function of Financial Management?



Meaning: - Financial Management is a specialised function of general management. It refers to management of business funds. It is mainly concerned with raising of finance and its effective utilization for achievement of goals of the organization.

Definition: -"financial Management is concerned effective use of an important economic resource, namely capital funds."

Function of Financial Management: The functions of financial management can be divided into two:
(A)    Routine functions                       (B) Executive Function
Routine functions
1.       Record keeping and reporting...Preparation of various financial statements...Cash planning...Credit management
2.       Providing information to Board of Directors on current financial position for making decisions of purchases, marketing, pricing, etc.
(B)    Executive Function
1.       Forecasting Financial requirements: -Financial needs have to be carefully estimated in business. Money may be required for long term purpose i.e. fixed capital and for short term purpose i.e. working capital. Forecasting is not only concerned with amount of money required for a programme but also includes:
a)       Duration of funds (5 years, etc)
b)       Timing of supply of funds.
c)       Kinds of funds (owned or borrowed, etc)

2.        Deciding sources of funds: -Once the need of finance is revealed, various sources of funds must be considered. Different type of securities like shares, debentures, etc. can be issued to raise funds. Funds may also be borrowed from financial institutions and lenders. There should be a proper balance between long term funds and short term funds.

3.       Investment decisions: -Investment decisions refer to the decisions regarding utilization of funds raised by the firm. It relates to the selection of assets in which funds are to be invested. The funds can be invested in two types of assets, mainly
a)       Long term assets or Fixed assets                         b) Short term assets or current assets

4.       Dividend Policy: -A business firm is basically a profit earning organization. The earnings of a firm depend upon efficient utilization of funds. Financial management is also concerned with the decision to declared dividend. A finance manager has to decide what portion of profit is to be retained in the business and balance is to be distributed among shareholders.

5.       Checking and analysis of financial performance: -The checking and analyzing financial performance is very essential to carry out financial functions smoothly. For this various financial statements are prepared and analysed. This is of great value in improving techniques of financial control.


6.       Advising Board of Directors: A finance manager provides advice to Board of Directors in respect of financial matters. He suggests various solutions for any financial difficulty; normally finance manager gives advice on important matters such as pricing, expansion, acquisition (gaining), dividend policy, etc.