The scope of financial management includes three clusters. First – concerning to finance and cash, second – increasing of fund and their administration, third – along with the activities of rising funds, these are part and section of total management, Isra Salomon fingered that in view of funds utilization third cluster has broader scope.

It can be said that all activities done by a finance officer are under the purview of financial management. But the activities of these officers change from organization to organization, it become hard to say the scope of finance. Financial management plays two main roles, one – contributing in funds utilization and controlling productivity, two – Identifying the requirements of funds and selecting the sources for those funds. Liquidity, profitability and management are the functions of financial management. Let us know very briefly about them.

Functions of financial management

1. Liquidity:

Liquidity can be determined through the three significant considerations.

i) Predicting cash flow:

Cash inflows and outflows should be equalized for the purpose of liquidity.

ii) Growing funds:

Finance manager should try to recognize the requirements and growth of funds.

iii) Managing the flow of internal funds:

Liquidity at advanced degree can be maintained by keeping accounts in many banks. Then there will be no need to depend on external loans.

2. Profitability:

While establishing the profitability the following aspects should be taken into attention:

i) Cost of control:

For the purpose of controlling costs, various activities of the organization should be investigated through appropriate cost accounting system.

ii) Pricing:

Pricing strategy has great importance in determining sales level in company’s marketing. Pricing strategy should be evolved in such a way that the image of the organization should not be affected.

iii) Predicting future profits:

Often estimated profits should be determined and measured to strengthen the organization and to ascertain the profit stages.

iv) Measuring the cost of capital:

Each fund source has different cost of capital. As the profit of the organization is directly connected to cost of capital, each cost of capital should be measured.

3. Management:

It is the responsibility of the financial manager to keep the sources of the assets in maintaining the business. Asset management plays a significant role in financial management. Besides, the financial manager should see that the essential sources are available for smooth running of the organization without any interruptions.

A business may fail without financial failures. Financial failures also lead to organization failure. Because of this unusual condition the responsibility of financial management enlarged. It can be divided into the management of long run funds and short run funds.

Long run management of funds narrates to the development and extensive plans. Short run management of funds narrates to the total business cycle activities. It is also the accountability of financial management to co­ordinate different activities in the business. Thus, for the success of any business or organization financial management is supposed to be an essential.

financial management

January 26, 2017