It is the responsibility of the financial manager to ensure that the organization’s finances are managed efficiently through decision-making. Each and every interest of the organization and its proprietors must take into account when making decisions. Actions that result in an increase in the market value of stocks are perceived as constructive and fruitful by the general public. While there are numerous benefits to increasing the share price, such as accomplishing other objectives, this does not provide managers with unfettered permission to engage in unethical behavior in pursuit of this objective. In this article, we will discuss about objectives of financial management in brief with examples for your better understanding.
While enhancing the value of a company is the overarching objective of financial management, achieving this aim is not a simple task. The operational management of the organization holds significance for numerous stakeholders, encompassing suppliers, proprietors, and individuals employed within the financial industry.
Objectives of Financial Management
In the context of an organization, the term “financial management” refers to the implementation of managerial principles in the financial operations. Financial management, a discipline that combines elements of science and art, seeks to accomplish objectives by utilizing capital strategically. This term refers to the process of organizing, planning, directing, and monitoring the financial resources of an organization in order to achieve its goals. Here are a few things you should know about objectives of financial management before you think about money, investing, business, or management. To expand your understanding of characteristics of financial management, read beyond what is apparent.
Holistic Evaluation
A comprehensive understanding of the total quantity required is among the most essential objectives of financial management. It is the responsibility of the financial manager to generate a well-informed projection regarding the amount of capital that the organization will require. Determining the startup expenses is a critical initial phase in establishing the company for business. It is his responsibility to determine the necessary quantities of working capital and fixed capital for the organization. He likely possesses a reasonable likelihood of being correct. In the absence of this, there will either be an excess or deficiency of funds. Assigning an exact amount of funds that will require is an exceedingly difficult task. The financial manager task with the responsibility of taking into account numerous factors, such as the scale of the organization, the quantity of employees, the legal requirements, and the technological infrastructure.
Financial Allocation
The primary objective of financial administration is to guarantee that funds are being utilized judiciously. The individual in charge of the funds must ensure that they are being utilized in the most effective manner feasible. It is imperative that he makes prudent use of the funds. The funds of the company are too valuable for him to fritter away. Implementing initiatives that do not generate revenue with company funds is an unwise course of action on his part. By issuing shares, he is prohibited from impeding the incorporation of the company. Clearly, he is pressed for time to make the payment.
Creating Reserves
The company will discover that managing the uncertainties it encounters will be less difficult with increased savings. It is of the utmost importance that the company has a meticulously devised dividend policy that enables year-round cost savings. Moreover, it is imperative to allocate the financial gains. The savings may potentially enable the organization to endure periods of instability and facilitate expansion. Additionally, it can employee in the event that anything goes awry in the future.
Marketing Efficiency
Marketing has a significant impact on the bottom line of a business. There are numerous opportunities for a company to promote and sell its products. However, additional resources are still necessary within the marketing industry. This means that any organization considering investing in advertising must have a clear understanding of the expected return on investment. A program that fails to produce the intended outcomes for the organization might necessitate modification or even a temporary suspension. In light of this, the financial manager task with utilizing these reports to determine the appropriate allocation of funds. Reports detailing the total revenue generated by each advertising campaign are the responsibility of the marketing department.
Business Continuity
The organization must continue to function in spite of the challenging nature of the business environment. As a consequence, all decisions will make in accordance with the individual in command of the funds’ best judgment. Prior to undertaking significant decisions, individuals frequently seek the advice of specialists and conduct independent research.
Maintain Records
Additionally, accurate documentation of all financial transactions that take place within an organization is critical for effective money management. By implementing this regulation, we hope to ensure that the funds are utilized effectively and efficiently.
Balanced Structure
The oversight of the organization’s monetary structure is an additional responsibility of financial management. It achieves a favorable allocation of various forms of capital, such as retained earnings, loans, stocks, bonds, and so forth.Preserving this equilibrium is critical for ensuring the stability, adaptability, and liquidity of both the corporate sector and the economy as a whole.
Improved Efficiency
When a business effectively manages its finances, each component and division can operate with greater efficiency. All offices will be capable of performing their duties to a significant degree if the available funds are allocated in a fair manner. That facilitates the achievement of the organization’s objectives, which is beneficial for the growth of the business in its entirety.
Cash Management
The financial manager is responsible for ensuring that sufficient currency is always on hand and for ensuring a steady flow of funds into and out of the business. As a consequence, the probability of the organization encountering cash flow challenges or surpluses will diminish. The financial management of the organization is obligated to ensure that a sufficient quantity of cash is consistently accessible. The likelihood of survival and success for a business is increased by a consistent revenue stream.
Proper Mobilization
Soliciting and accumulating funds is one of the principal aims of financial management. The initial phase entails determining the required amount of funds, which falls under the purview of the finance department manager. He possesses the ability to procure funds via various means, such as bank loans, debentures, and equities. It is of the utmost importance to maintain a prudent proportion of owned and borrowed funds. Obtaining a low-interest loan is something that the company ought to consider.
Finance Strategy
Providing dependable financial information to superiors, clients, and lenders is one of the principal objectives of financial management. Moreover, the Financial Manager must have a sound financial strategy, be it for spending the money, keeping it under control, or for something wholly different.
Profit Maximization
Shareholders are the individuals who possess a tangible interest in a company.This indicates that the company should give utmost priority to maximizing shareholder wealth. The principal duty of the financial manager is to optimize dividend disbursements with the dual purpose of ensuring shareholder satisfaction and enhancing the organization’s reputation within the financial sector. Contributing to the formulation of the distribution strategy and announcing dividends is a financial management expert.
A sensible dividend strategy must establish prior to deciding whether to distribute earnings to shareholders or reinvest in the growth and development of the company. However, this is contingent upon the profitability and degree of success achieved by the organization. An enhancement in a company’s performance results in an appreciation of its stock value on the stock market. Financial management task with the responsibility of augmenting the value of the organization in order to enable the proprietors to realize the advantages.
Asset Growth
Financial administrators endeavor to augment the value of the organization’s assets, or stock, as one of their primary objectives. The act of “maximizing wealth” entails increasing the amount of capital that is accessible to shareholders. Therefore, the financial manager of the company is extremely conscientious in their endeavor to optimize the return for the shareholders. Additionally, he endeavors to increase the market value of the equity. The market value of shares of a prosperous company is greater in comparison to those of a struggling one. In times of positive business conditions, shares value at a premium, whereas their value decreases during periods of economic downturn. This necessitates the chief financial officer’s responsibility to guarantee that shareholders obtain the utmost advantage.
Business Continuity
When it comes to financial management, an individual should prioritize their own survival. The organization must continue to function in spite of the challenging nature of the business environment. Whenever a decision involving the funds must make, whoever is accountable for their management must exercise extreme caution. One ill-fated decision is sufficient to destroy a business.
FAQ
Which Financial Management Objective is the most Important?
Financial administrators endeavor to augment the value of the organization’s assets, or stock, as one of their primary objectives. The act of “maximizing wealth” entails increasing the amount of capital that is accessible to shareholders. As a result, the CFO makes every effort to ensure that the shareholders receive the highest possible dividend payment. Additionally, he endeavors to increase the market value of the equity.
Which Goal of Financial Management is Superior?
The key to maximizing earnings is therefore to optimize the value of every individual share. All individuals are in agreement with respect to this objective. If the primary objective of a corporation is to augment the value or prosperity of its shareholders, then maximizing wealth is a more favorable objective than maximizing profits. Promoting the optimization of financial gains is the objective.
What are the Primary Objectives of a Financial Statement?
“The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.” The readability and comparability of financial records are contingent upon their practicality, accuracy, and clarity.
Final Remarks
Each person intends to manage their financial situation in a distinct manner. They must determine, among other things, how much money to invest, spend, trade, and put aside. Equal decisions must be made by company executives. This pertains to the administration of financial assets. We may discuss a number of the objectives of financial management. In this guide, we’ve explained objectives of financial management. I hope that provided you with some useful knowledge.
