what is financial management essay

what is financial management essay

The Importance of Financial Management in Modern Organizations

1. Introduction to Financial Management

Financial management is related to the acquisition, financing, and management of assets with some overall goal in mind, and it is not only the accounting function, it is also the management of the business process of financial and operational decision in a firm. In order to obtain critical feedback and execution throughout the business, accurate financial and operational decision consequences should be available in a time frame that is compatible with the decision-making process. Financial management allows the coordination of the business orientation in terms of its objectives. Financial management has net present value and internal asset pricing models at its core. The central issue in corporate finance is a lot of critical questions that revolve. The importance of expected cash flows and stock valuation is used as a basic premise for the class. The financial management of the firm in the process of decision-making is important in modern-day organizations for a number of reasons.

Financial management is about preparing, directing, and controlling the financial resources and profits of the company. In the absence of financial management, team members will not be aware of their objectives. If the accounting function of the company is not managed properly, one will not be able to plan or control the results of the business. Financial management has three major objectives: making money, making a business profitable, and providing for the future of the business.

2. Key Concepts and Principles of Financial Management

Management’s accomplishments are not only restricted to the management of organizations and managing resources, but management is also well associated with the management of the organization’s stakeholders and has different views about the alternative courses of action to carry out its role or objectives. Ethics is one of the requirements of the ability of public interest of the financial manager’s perception. Although management is viewed from one or a combination of the p-o-l-c structure, different skills are required by managers. The identified need for skills is largely due to the changes in organizations and the development of information technologies. To develop financial knowledge, skills, and values needed for more advanced study of finance, and to help in the development of the following ten roles of the financial managers.

Capital is one of the main factors that directly influence the observation of organizations’ goals and supply of its fundamentals. This way, daily, organizations need capital and, consequently, need to track, measure, and detail all the activities related to its use. The process or function of monitoring or following the use is known as Financial Management, a practical analysis of organizations that is used to explore its realities. However, this name is used in different ways, including meanings and applications. The names in Financial Management are: Business Finance, Financial Management, or Financial Administration. Considering a more ambitious level, Hardy describes financial management as the “process of managing the financial resources, including the planning of expenditure and investment, together with the control to ensure that the available finance is used obligatorily, resulting in maximum enhancement of the value of the business and minimizing the risk of the stakeholders”.

3. The Role of Financial Management in Organizational Success

The decision-making made in the area of finance respects, or should respect, the organization’s broader strategy in the pursuit of wealth maximization. The ultimate objective of finance, according to managerial capitalist theory, is the maximization of the wealth of shareholders. In various market segments too, the maximization of company value remains the primary concern for administrators and managers of public or private organizations. As an intuitive and valid intermediary objective, financial intelligence must provide the appropriate decision-making tools that allow the continuity and growth in congruence to the organization’s development strategy in the mid and long terms. Small, medium, or large, the principles governing financial management remain the same. Whether for strategic or tactical decisions, the use of the tools and techniques of financial intelligence should condition the strategy for dealing with the economic and financial problems inherent in the management of activities.

Financial management is an aspect of the overall management and provides decision-making support to other sectors in the organization. As a consequence, only management can perform financial duties, and the financial manager may be able to only assist in some financial activities. The advantages of finance are many and usually depend on them to achieve the expected results in the business world. The finance process has an auxiliary role to other management functions. It is important that financial intelligence diffuses beyond the financial manager in that changing economic and technological reality in the globalized world demands the increased participation and understanding of the effects generated by new financing alternatives.

4. Challenges and Opportunities in Financial Management

In this sense, based on theoretical review, this chapter aims to identify the internal and external influences that can compromise the processes to create value, effective financial management, demanding a broader relationship with the decision-maker, which should ensure at least the balance between the observable results validated by a set of stakeholders’ relationships, that is, compliance with objectives and interests of the shareholders, social environment and the market. In this turbulent landscape, financial management requires new tools and information systems to support the financial business manager, conducting an efficient and effective action and ensuring the success and permanence of many organizations.

An appropriate approach to the administration of financial resources related to sustainable development of organizations is to overcome major problems such as the lack of financial history, the difficulties of estimating future yields, the uncertainty of outcomes, and the usual contradiction of interests and conflicts of organizational values that delimit precisely the need to be increasingly transparent and responsible. In this context, research is a valuable ally to establish guidelines in the role of the financial function of organizations to create long-term value, contributing to efficiency and effectiveness by reducing business risks.

5. Best Practices and Strategies for Effective Financial Management

Align financial management with your organization’s mission and strategy and performance. Establish key performance indicators that relate back to stakeholder value. Management must understand what information they require to manage their organization’s financial performance. Overcome user resistance. Create a customer-focused process. Understand cost issues and the impact of product and service costing. Develop end-to-end processes. Integrate financial management with other business processes. Allow easy and timely access to financial information. Ensure that the financial management organization is appropriately structured. Keep up-to-date with emergent practices and issues. Obtain the best advice and quality systems.

It is not enough to know what needs to be done or why. Excellence comes from knowing how to do it effectively and efficiently. In this section, we will discuss some of the strategies that have been employed by top executives to efficiently and effectively manage their firms’ finances. We’ll identify some best practices and strategies that you can employ in your organizations in order to optimize resource use, create and sustain stakeholder value, and provide an enabling environment for pursuing an organization’s mission and vision. We will then identify the essential elements of financial management information systems that can support these activities before examining emerging challenges in financial management.