Introduction
In our ever-expanding world, financial management is one of the most crucial elements for both individuals and organizations. The focus now is on managing and developing money, not on preserving it. To accomplish corporate objectives and operate a company effectively, it is imperative to possess a solid grasp of financial accounting and management.
I. What is Financial Management?
As per Guthman and Dougal, two financial experts,
The planning, raising, controlling, and administration of cash utilized in the business constitute the activity known as financial management.
It handles the money such that the company or organization is soon profitable and expandable.
II. Objectives
A company’s goal is the benchmark by which its operational performance is assessed. A decision-maker uses the goals as a point of reference. The following are the aims or purposes of financial management:
1. Profit Maximization
Maximizing earnings is the aim of financial management. Several significant choices are made to optimize the company’s profit. The goal of financial management, profit maximization, leads to effective resource allocation. Businesses raise capital by selling shares to the general public. Additionally, investors buy shares in the hopes of receiving strong dividend payments from the business. People would not invest in such a company and those who have already made investments would sell their stock if it does not generate strong profits and does not increase dividend payments.
2. Wealth Maximization
The goal of maximizing shareholder wealth takes into account all potential future cash flows, dividends, earnings per share, decision risk, etc. This objective has a direct impact on the firm’s policy decisions regarding what investments to make and how to finance them. The goal of shareholders is to maximize their wealth, which is contingent on the share price. An increase in market price causes the wealth of shareholders to appreciate, and vice versa. Thus, the main objective of financial management is to increase the market value of the company’s equity shares.
In this case, the balance sheet might show an “Increase in Accounts Receivable (30000).”
3. Return Maximization
Protecting the financial interests of all parties involved in the business, whether they be creditors, employees, or shareholders, is the third goal of financial management. Additionally, each of these parties has to receive the maximum return on their investment, which is only achievable if the business makes more money to pay its debts to them.
III. FAQs
1. What are the different types of job roles in Financial Management?
- ● Financial Manager
- ● Investment Banker
- ● Corporate Manager
- ● Budget Analyst
- ● Financial Planner
2. How much does a finance manager in the United States typically make?
A Finance Manager in the United States makes, on average, $1,03,000 per year.
3. What Financial Management courses are offered?
Online courses are offered in multiple locations. To begin your financial management career, you can enroll in free short-term courses. Later, you can choose to pursue a postgraduate program or an MBA in finance. I have a couple of courses for you:
- ● Foundations of Business Finance
- ● Executive Postgraduate Program in Management: Online MBA Degree in Basic Accounting Certificate
Conclusion
In summary, maximizing profits is the main objective of financial management. The practice of evaluating and making the most use of the resources that are available to maximize earnings is known as profit maximization. For stockholders of the company looking for the best return on their investment, this provides the biggest advantages.