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Concept
Financial management
Summary
Financial management is the business function concerned with profitability, expenses, cash and credit, so that the "organization may have the means to carry out its objective as satisfactorily as possible;"
the latter often defined as maximizing the value of the firm for stockholders.
The discipline is then tasked with the "efficient acquisition and deployment" of both short- and long-term financial resources, to ensure the objectives of the enterprise are achieved.
Financial managers (FM) are specialized professionals directly reporting to senior management, often the financial director (FD); the function is seen as 'Staff', and not 'Line'.
Managerial financeFinancial risk management#Corporate finance and Financial modeling #Accounting
Financial management is generally concerned with short term working capital management, focusing on current assets and current liabilities, and managing fluctuations in foreign currency and product cycles, often through hedging.
The function also entails the efficient and effective day-to-day management of funds, and thus overlaps treasury management.
It is also involved with long term strategic financial management, focused on i.a. capital structure management, including capital raising, capital budgeting (capital allocation between business units or products), and dividend policy;
these latter, in large corporates, being more the domain of "corporate finance."
Specific tasks:
Profit maximization happens when marginal cost is equal to marginal revenue. This is the main objective of financial management.
Maintaining proper cash flow is a short run objective of financial management. It is necessary for operations to pay the day-to-day expenses e.g. raw material, electricity bills, wages, rent etc. A good cash flow ensures the survival of company; see cashflow forecast.
Minimization on capital cost in financial management can help operations gain more profit.
Estimating the requirement of funds: Businesses make forecast on funds needed in both short run and long run, hence, they can improve the efficiency of funding.
Official source
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