financial management essay topic

financial management essay topic

The Importance of Financial Management in Achieving Organizational Success

1. Introduction to Financial Management

Everyone in the organization is responsible for understanding the consequences of their decisions on the financial performance of the business, and the finance officer of the organization is responsible for making sure these consequences are pressurized.

Therefore, the necessity of the financial manager to acquire the resources needed for the organization’s functions, adherence of the organization to financial goals, and the steady employment of the resources obtained in operating the organization’s functions, placed financial management as a major responsibility in an organization. For an organization to accomplish long-term success, the financial function must be involved in the primary firm activities of its strategic planning, marketing, capacity expansion, manpower support, and correlate its strategies with these factors.

The finance administrator of an organization once affirmed, “Because in our society money is needed to achieve almost all our goals, management without the aid of adequate funds would be quite impossible. The subject of financial management may be regarded as an area of organizational decision-making, which involves the necessity of obtaining and utilizing an economic entity’s resources in the most efficient manner, which includes deciding on optimal levels of investment in real assets and money, and deciding the means of procuring these investments.”

Financial management is a vital activity in any organization. It is concerned with the requirements of funds for a business and includes raising and allocating money, cost control, dividend distribution, and retention of earnings. On the need for financial management, a financial manager stated, “One of the seemingly sure recipes for disaster is to embark on any substantial course of activity that is not financially sound.”

2. Key Principles and Concepts of Financial Management

These may be obtained from many sources, each with its own peculiarities. Finance covers every activity related to the acquisition of capital and the use of that capital. Financial management is that division of management which is concerned with the financing of business activities. Every business enterprise, whether big or small, needs finance to carry on its operations. This includes the acquisition of fixed assets, such as plants, vehicles, machinery, and other equipment, the financing of working capital, and so on. Income or revenue is generated by the effect, either the production or purchase, and subsequent sale of goods and services. The absolute profit or net surplus will depend on the income generated and the costs. Managing the costs at a level consistent with delivering the plan and providing the necessary return to stakeholders is a key responsibility of company management. The role of financial management is to provide the process by which this is achieved.

This article explains the key principles and concepts of financial management. It is particularly useful for non-finance directors and managers, and it will also help finance professionals to communicate financial matters clearly to non-financial audiences. Topics will include planning, profit and loss accounts, balance sheets, cash flows, investments, working capital, cost of capital, and sources of finance. We will also present simple techniques for financial statement analysis and budgeting. The main objective of any organization is to survive and then grow. It may be pursuing not only commercial aims but also social or other objectives such as those of charities and trusts. Financial management is an essential part of the economic and non-economic activities which are responsible for the acquisition of funds and their effective utilization for the maximization of shareholders’ wealth. Finance is the general term applied to the commercial activity of providing funds and capital. It markets or makes available many types of funds.

3. Financial Management Tools and Techniques

When the business is viewed as a call option, managers are seen as less conservative, and the price-versus-book ratio is seen as justified by the growth opportunities open to the business. Corporate risk ratings and long-term debt ratings provide more investor information than do short-term ratings. The objectives of financial management of the firm have been modified through the applicability of new theories. The traditional debt vs. equity model assumes that there is a fixed risk, that is upper bounded VSA fixed number k, when kV 0, evaluating that the value of the risky assets for valetas a subjective perspective. The returns on capital estimation under the option models by secondhand data is that there is pervasive endogeneity which is statistically and economically significant opt for financially feasible debt-equity ratios. Combining absolute results to come up with a definite rank order in 1998. Software applications provide an implementation interface that allows the model for carrying out a maximum (OLS) with dummy variables that allow the effect of operating leverage, financing leverage, and tax leverage.

The choice of tools and techniques to use in the financial management zone has seen its evolution. New tools and techniques employ the relationship between internal and external data. The models in this zone may involve modern portfolio theory, financial derivatives, mark out equitable working capital management models (commonly associating enforcement between investment in working capitals and its import liquidity capacity as determined by the trade-off between ordering and retaining inventory, and offering values credit, the completely revised process, and Muller et.al. 1995) (Common 2000). Risk management and option are seen as central to financial decision making as is the need to manage business firms in ways that provide consistent with the binomial model. The theory of options is a natural deduction of the assumption that capital expenditures represent real options, rather than fixed obligations. In this key, it recognizes continuity in the decision-making process.

4. The Role of Financial Management in Organizational Decision-Making

Unless finance is managed properly, data and expertise can effectively impede that business’ opportunities. The efficient management of financial resources is crucial. The manager is responsible for obtaining financial and accounting information, analyzing this information, and making recommendations that affect the financial stability of the business. The multi-faceted goal of financial management deals with a wide variety of events that relate to the nature of your organization. These events, however, are closely coordinated. Successful financial planning includes the coordination of management elements among the objectives of the system. The first is training the second, so that management can force the training and timing of relevant events on the group’s work. Salary raises, credit granting, cash, and other financial decisions must all be made in relation to the goals of achieving financial success and a functioning organizational system.

Financial organizations contribute to a business venture’s success in a variety of ways, using both their collective expertise to analyze and recommend solutions to operational challenges and their unique perspective to help keep the company on track financially. Financial management – and the chief financial officer (CFO), the treasurer, the controller, the credit manager, and other managers in the financial area – all play a key role in the decision-making process of the company. With the right information on time and on budget, these managers can work to sustain and enhance the company. The variety of challenges financial management should understand and be prepared to face is long. Today’s manager must understand the future, and successful managers are those who can predict the future and act correctly on the basis of these projections. Some of that future is reasonably certain, and some is not. Much of the financial manager’s time is devoted to making important decisions in order to be sure that the company is financially prepared to handle all such future opportunities. These decisions are used to measure the predicted opportunities. They include: the allocation of capital, dividend policy, credit policy, cash policy, and profit planning.

5. Challenges and Best Practices in Financial Management

Some of the more specific activities of the financial management discipline include financial analysis, corporate governance and monitoring, planning, budgeting, etc. Also, nowadays, the information technology systems – management of which is part of the financial management discipline – particularly Enterprise Resource Planning (ERP) systems, facilitate the integration of all the data and the business processes involved in the financial management of most of the activities of this management area. In addition, the strategic nature of financial management that sits across the organization attracts the attention of business management researchers. Indeed, many studies support the idea that the participation in the planning, the influence on the selection, the use and the development of the IT systems (including the ERP systems) in the organization are needed for effective financial management.

While achieving success is not an easy task, sustaining success is an even tougher challenge. Organizations aim to achieve success mainly by positioning their products and services successfully in the marketplace. However, achieving organizational success is a multifactorial process, and effective management of either the external or internal factors that drive the organization’s performance plays a critical role in achieving that success. Financial management is one of the most important management activities in many organizations that aims to improve the stakeholders’ value. Financial management is a set of tasks accomplished to reach effective and efficient use of the financial resources available to an organization. It is an analytical and evolving discipline that addresses the development of efficient and effective financial systems and processes, as well as the development and implementation of financial principles, policies, procedures, and practices to improve the ability of the organization to achieve its goals.