WHAT IS FINANCIAL MANAGEMENT / THE MEANING OF FINANCIAL MANAGEMENT

Financial management is the summation of those managerial functions geared towards finance performed by an organization in order to achieve her financial objectives.

This is to say that financial management is that branch of management that deals with the management of finance. Financial management has over the years grown to become key factor in strategic planning / strategic management of a business as the impact of finance functions are been felt the more in business settings.

Just like every other discipline, financial management has many branches which ensure the coverage of broader horizon.

Aspects of financial management

  • ECONOMIC ENVIRONMENT: because businesses operate in an open system, they co-operate with other subsystems that makeup an environment. Good knowledge of economic environment of a business is a must have knowledge and financial management incorporates the study of economic variables both at the micro and macro level.
  • WORKING CAPITAL MANAGEMENT: working capital management is the process of tweaking financial resources at the disposal of a company and how it will be best utilized. More on working capital management will be written in due course.
  • INVESTMENT APPRAISAL: companies and businesses don’t just go into all sorts of investment they find around, they only stake their hard earned money into worthwhile investments. The financial viability of projects and otherwise are ascertained through a process known as capital budgeting or investment appraisal processes.
  • CORPORATE FINANCE / BUSINESS FINANCE: this is the study of the movement of finance in business. It is the function of the financial manager to effectively and efficiently manage the corporate finance of an organization from the strategic point of view.
  • COST OF CAPITAL: cost of capital is the estimate of what it cost a business to have investors willingly allow their finances to be used by businesses. The process of determining the cost of capital is a complicated and complex one that will surely not be covered in an article like this. Looking around this blog may give you all that you desire and even more.
  • BUSINESS VALUATION: businesses are valued for various purposes and it is within the jurisdiction of financial management to reasonably place a value of the assets of any business.
  • RISK MANAGEMENT: business risks and financial risks are kinds of risks that can cripple a business that does not take note of them. It is through financial management that these risky variables are studied and put under control. The risk management can either be the traditional enterprise risk management or the integrated strategic risk management approach.

Financial management has things in common with management accounting. I want to assume that you already know that management accounting provides internal information that helps businesses manage variables like labour, materials, etc. In the same manner, financial management provide internal information to the management to make them make informed economic decision in the areas of; investment, financing, dividend policies, and risk management.

Again, just like management accounting, decisions made based on internally generated information go a long way in affecting the general fortune of the company. The investment decision of a company can either make or mare the public confidence on a company.

Financial management was formerly imbedded into economics but was later separated to stand alone as a full fledge discipline. Financial management make use of many mathematical tools.