PDF Role Of Financial Management

It is the duty of the finance department to advise companies on the best financing mix that could yield the company the best profit and also help them source longer-term financing at the lowest cost such that there is a profit level of liquidity. Some of the many varied paths a company can source funds to finance their business as discussed in one of our articles “10 Most Common Ways to Finance Your Business” include bank credit or private lender debt or, share issues to private investors . When funding has been secured, detailed project budgets should be developed.

Wealth maximization is the ability of a company to increase the market value of its common stock over time. The market value of the firm is based on many factors like their goodwill, sales, services, quality of products, etc. Read more about analytical methods of controlling financial and economic activities here. To illustrate, profit may be, short term or long term; total or rate of profit; Profit before tax or Profit after tax, return on investment or return on total assets or return on equity and so on. Through profit maximization, a firm can be able to ascertain the input-output levels, which gives the highest amount of profit. Therefore, the finance officer of an organisation should take his decision in the direction of maximizing profit although it is not the only objective of the company. He should always keep in view the psychology of investors who wish to get a better yield on their investment.

Financial Accounting is the process of identifying, measuring and recording the economic transactions with the purpose to provide information to various users for their decision making. Financial Management has strong linkage with the functions of top management. For example; basic inputs such as planning and control provided by Financial Management to top management.

Ask any finance team for their most stressful work periods, and they’ll undoubtedly say it’s the close process. They have to scrounge and beg to get all of the information they need simply to record how much money came in and went out of the company that month, quarter, or year. After a decade of economic growth, companies suddenly had to manage every dollar, euro, and pound they spent.

Additionally, the finance department manages current assets, current liabilities, and inventory control. Before developing strategies to accomplish the firm’s goals and objectives, a manager needs to identify and evaluate the internal strengths and weaknesses of the firm. External opportunities and threats that impact the firm’s ability to accomplish its objectives also need to be considered. As we mentioned time and again throughout this post, reporting on finances is key to the internal functioning of a business. But not just that, financial statements also prove to be very useful to ensure transparency. For instance, a business working in the public sector might be financed by taxpayers or donors, therefore, they need to be accountable for the way they spend the money they have received.

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