Financial management comprises of the process of planning, organizing and controlling of financial resources in order to achieve organizational objectives. The three main objectives of financial management are capital planning and allocation, risk management and liquidity management to ensure the long-term viability of a business.
What do you understand by “Financial Management”?
Financial management is the process of planning, organizing, directing, and controlling the financial resources of an organization in order to achieve its objectives. The primary objective of financial management is to maximize shareholder value by ensuring that the company’s financial resources are used efficiently and effectively.
In this article, we will discuss the main objectives of financial management and how they contribute to the success of an organization.
The most basic objective of financial management is to maximize profit. This means that the company should strive to increase its revenue and decrease its expenses in order to generate as much profit as possible. However, profit maximization is not the only objective of financial management, as other factors such as social responsibility and long-term sustainability also need to be taken into account.
Another important financial management objective is ensuring the company has enough liquidity to meet its short-term financial obligations. This means that the company should have sufficient cash or liquid assets to pay its bills and other expenses as they become due. By maintaining sufficient liquidity, the company can avoid financial distress and bankruptcy.
Financial management also involves managing risk. This includes identifying and assessing the company’s risks and developing strategies to mitigate or avoid those risks. By managing risk effectively, the company can minimize the impact of unexpected events on its financial performance and maintain the confidence of its investors and stakeholders.
Achieving long-term growth
Financial management also involves planning for the long-term growth of the company. This means that the company should invest in new products, services, and markets in order to expand its customer base and increase its revenue. The company can increase its market share and enhance its competitive position by achieving long-term growth.
Enhancing shareholder value
Finally, financial management aims to enhance shareholder value. This means that the company should make decisions that increase the value of its shares and maximize returns for its investors. By enhancing shareholder value, the company can attract and retain investors, improve its credit rating, and increase its access to capital.
In conclusion, financial management plays a critical role in the success of any organization. By focusing on the objectives of maximizing profit, ensuring liquidity, managing risk, achieving long-term growth, and enhancing shareholder value, financial managers can ensure that the company’s financial resources are used in the most effective and efficient manner possible. By achieving these objectives, the company can generate sustainable growth and profitability, and create value for its shareholders, customers, and other stakeholders.