The concept of Financial Management
Finance is essential for running a business. The success of a business depends upon how well finance is invested in assets and how timely and cheaply the finances are arranged. The concept of financial management deals with the money required for carrying out business activities, also known as business finance. Finance is central for running the day to day operation of a business like buying material, paying bills, etc.
Let’s learn more about it.
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Financial management is concerned with efficient acquisition and allocation of funds. In other words, financial management is concerned with the flow of funds and involves decisions related to the procurement of funds, investment of funds in the long term and short term assets, and distribution of earnings to the owner.
Role of financial manager in an organisation
1. Size and composition of fixed asset
It depends directly on investment decisions that is, how much capital or money the company is planning to invest.
2. Amount of composition of current asset
The amount of current assets and their division in cash, bills receivables, etc also depends upon financial decisions.
3. The amount of long term and short term financing
The amount of long term, as well as short term financing, depends upon the financial management of an organization. There is a choice between liquidity and profitability that is, current liabilities cost less than a long-term liability.
4. Fixing debt equity ratio in capital
The firm can raise long term debts by issuing equity shares as well as by issuing debentures and other borrowed fund security. Financial management helps in fixing this ratio.
5. All items in Profit and loss account
All the items of profit and loss accounts are affected by the decision of financial management. Generally, items related to expenses and revenues are recorded in the profit and loss account.
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