Financial

ManagementDefinedF
urther
Financial Management, Defined
• Financial management is a functional unit of abusiness
organization
controlling,and directing the
that sets policies towards organizing,
proper use and allocationof itsfinacial resources. It caries with it an
interlockingcoordinationwithin the business structure such as
production,marketing, • It is
logistics and personnel functions.
concerned to be one of the most significant resonsibilitieswithin the
business entity. Business activities relatedtooperating, financing and
investing require considerableamountof decision making that will affect
company’s financial condition,
structure, performance and profitability.
Importance of Financial Management
• Financial management function focuses on theareasof
a. investment decision such as capital budgetingor financial plan
preparation
b. financing decision such as creating the best financingmix or
capital structure
c. operating decision such as cost control or
strategiestoincrease revenue
• The financial management function is important
inbusinessorganization since it deals to:
 1. guarantee rational and attractive return on investment
madeinthebusiness.
2. examine financial performmance for growth and exapansion. 3. plan, direct
and control the use of financia resources. 4. ensure maximum and efficient flow
of operation. 5. create pleasant and amiable relations with company stakeholder.
6. harmonize operations of different facets of the business. 7. build up
appropriate controls to secure proper use financial resources.
Fundamental Concepts of Financial
Management
• Financial management is in incharge of efficient
planningandcontrol of funds inflow and outflow. 1. The appropriate
magnitude or volume of funds neededfor efficientoperations (capitalization);
2. The wise allocation of finacial resources to particular resources; 3. The short
and long term fund raising activities.

• Research, Time and Knowledge

 Businesses would require a significant amount of financial
information.Extensive amount of research, time and in depth
knowledgeisneededtomake these financial information relevant.
• Cost
Financial data would require analysis and interpretation,thecompany would
need experts to do the job. As suchappropriate
cost is necessary to attract this
type of personnel.

• Revision and Attention

Constant study will be needed to identify factorsandmake
adjustments on
the company’s financial plans andobjectives.

• Power
Fincancial mangers are given the power to make judgment call specially
when the operations of the business will be affected.
• Money Availability and Planning
Managing finances results to being able toidentifythesources
and uses of it.

• Accountability
Financial management focuses on various control procedures
related to the use of financial resources. It placesheavy burden on
accountability as those involvedneedtomonitorand make sure
compliance is done to every set of proceduresand policies with regard
to the management andcompany’sfinancial resources.
• Confidence
Stakeholders can be assured that proper procedures andpoliciesarein
place to safeguard company’s financial resources.
Role of Financial Manager
 Given the complexities of financial activities, the company needs tohaveawellrounded
financial manager who can take care of all the important financial functionsofanorganization.
Among the most important functions of the financial managers are:
1. Raise the needed funds for the business operations- constantly monitorthecompany’s
liquidity, solvency and profitability.
Liquidity refers to both an enterprise's ability to pay short-termbills
anddebtsandacompany's capability to sell assets quickly to raise cash.
Solvency refers to a company's ability to meet long-term debts and continueoperatingintothe
future.
Profitability is a measure of an organization’s profit relative to its expenses.
Organizationsthat are more efficient will realize more profit as a percentage of its
expensesthanaless-efficient organization, which must spend more to generate the same
profit.
The company raise funds iether thru debt or equityfinancing:Debt

financing involves the borrowing of money

Equity financing involves selling a portion of equityinthecompany.
The following needs to be
2. Proper allocation of financial resources.
considered in order tomake a. The business
proper allocation of funds:
entity size and its capability for possible b. Status of assets where
growth.
the funds will beused, eitherfor
long-term or short-term. c. Manners on
which the funds are raised. 3. Profit Planning
Being able to generate profit is one of the most desired
outcome of any
Financial
business organization 4. Knowledge of Capital Markets
manager should be able to have anin-depth
knowledge and a clear
understanding of capital market.
Capital market is a place where buyers and sellersindulgeintrade
(buying/selling) of financial securities like bonds, stocks,etc.The trading
is undertaken by participants such as individualsandinstitutions.
References
• https://www.gartner.com/en/finance/glossary/profitability
• https://www.investopedia.com/articles/investing/100313/financial-
analysis-solvency-vs-liquidity
ratios.asp#:~:text=Liquidity%20refers%20to%20both
%20an,continue%20operating%20into%20the%20future.
• https://www.investopedia.com/ask/answers/042215/what-are-
benefits-company-using-equity-financing-vs-debt-financing.asp
• https://jamapunji.pk/knowledge-center/what-capital-market • Basic
Financial Management by Ariel Dizon p. 1-4