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Financial Managing

Financial management involves planning, budgeting, managing risks, and setting procedures to achieve an organization's financial goals. It is a perpetual process that requires an interdisciplinary approach, focusing on maximizing shareholder wealth while balancing risk and return. Key aspects include investment decisions, financial planning, capital structure management, working capital management, and risk management to ensure the overall financial health of a business.

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24 views22 pages

Financial Managing

Financial management involves planning, budgeting, managing risks, and setting procedures to achieve an organization's financial goals. It is a perpetual process that requires an interdisciplinary approach, focusing on maximizing shareholder wealth while balancing risk and return. Key aspects include investment decisions, financial planning, capital structure management, working capital management, and risk management to ensure the overall financial health of a business.

Uploaded by

Pj Borre
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Modeling

Definition of Financial Management


• Financial Management
• the process of planning funds, organizing available funds and. controlling
financial activities to achieve the goal of an organization.
Financial management
encompasses four major areas:
• Planning
• The financial manager projects how much money the company will need in
order to maintain positive cash flow, allocate funds to grow or add new
products or services and cope with unexpected events, and shares that
information with business colleagues.

• Budgeting
• The financial manager allocates the company’s available funds to meet
costs, such as mortgages or rents, salaries, raw materials, employee T&E
and other obligations. Ideally there will be some left to put aside for
emergencies and to fund new business opportunities.
• Managing and assessing risk
• Line-of-business executives look to their financial managers to assess and provide
compensating controls for a variety of risks, including:

• Market risk Affects the business’ investments as well as, for public companies, reporting
and stock performance. May also reflect financial risk particular to the industry, such as a
pandemic affecting restaurants or the shift of retail to a direct-to-consumer model.
• Credit riskThe effects of, for example, customers not paying their invoices on time and
thus the business not having funds to meet obligations, which may adversely affect
creditworthiness and valuation, which dictates ability to borrow at favorable rates.
• Liquidity risk Finance teams must track current cash flow, estimate future cash needs and
be prepared to free up working capital as needed.
• Operational risk This is a catch-all category, and one new to some finance teams. It may
include, for example, the risk of a cyber-attack and whether to
purchase cybersecurity insurance, what disaster recovery and business continuity plans
are in place and what crisis management practices are triggered if a senior executive is
accused of fraud or misconduct.
• Procedures
• The financial manager sets procedures regarding how the finance
team will process and distribute financial data, like invoices, payments
and reports, with security and accuracy. These written procedures
also outline who is responsible for making financial decisions at the
company — and who signs off on those decisions.
Nature and Scope of financial
Management
Nature of financial Management

Perpetual Process
Till the company exists, Financial management is going to exist. It
is not a one-time activity; instead, it’s a perpetual or never-ending
process. It is evolved and evaluated on a consistent basis which
matches the trending technology, resources, market conditions and
tools. This adaptability is crucial for steering a company through
economic uncertainties and market fluctuations.
2. Interdisciplinary Approach
Financial management takes a lot of factors and disciplines such
as accounting, economics, statistics, and mathematics into
consideration while managing the organization’s finances. Financial
managers need to integrate knowledge from these diverse fields to
make informed decisions that impact the organization’s financial health
positively
Goal-oriented

Financial management is all about managing the financial goals


of the company. The primary objective of financial management is to
maximize shareholder wealth. This goal underpins all financial
decisions, steering them towards actions that enhance the company’s
value and ensure sustained profitability.
• Risk and Return Trade-off
Financial management involves a delicate balance between risk
and return. The sign of sound financial management is the
maximization of returns with less risk. There are multiple decisions like
investment choices, financing options, and dividend policies that
require an assessment of potential risks against the expected returns.
Striking the right balance is essential for long-term sustainability. A
manager or authorized person has to ensure the right balance between
risk and return which will benefit the organization and its stakeholders.
• Utilization of Funds
Managing the financial resources is a tough task and efficient
utilization of funds is a key of financial management. It involves
allocating resources optimally to ensure the organization’s operational
efficiency, growth, and overall competitiveness in the market.
Managing the flow of funds plays a big role in determining the success
of the business. To ensure the right flow, monitoring on a regular basis
needs to be done.
Scope of Financial Management
Investment Decisions

Managing funds is the key to successful financial management.


Determining where and how to invest funds is an important aspect of
financial management. This includes evaluating various investment
opportunities, estimating returns, and assessing risks to make informed
choices that align with the organization’s goals.
Financial Planning

Financial planning is crucial in defining the path to a company’s


financial success. This involves budgeting, forecasting, and
strategic planning to ensure the availability of funds when needed.
More importantly, financial planning gives authorized people a process
to track and measure the success of the business.
• Capital Structure Management

Capital structure management is about finding the right balance


between debt and equity to fund a company’s activities. The
composition of a company’s capital, known as its capital structure, is a
crucial aspect of financial management. The two primary components
of capital structure are Debt and equity capital. The sound capital
structure management is about focusing on cost of capital, risk
management, maximizing shareholder value, financial flexibility, etc
• Working Capital Management

Working capital management is all about monitoring &


controlling short-term assets & liabilities ensuring smooth day-to-day
operations of a business effectively. Financial managers need to strike a
balance between current assets and liabilities to ensure the smooth
flow of business activities. The key objectives of Working capital
management include Managing liquidity, inventory, accounts
receivable, accounts payable, cash flow forecasting, etc. Effective
working capital management contributes to the overall financial health
and stability of a business.
• Dividend Decisions

Determining the distribution of profits through dividends is


another aspect of financial management. Dividend decisions are about
an organization’s choices regarding the distribution of profits to its
shareholders in the form of dividends. There are certain factors
involved while making dividend decisions like profitability, cash flow,
investment opportunities, tax, etc.
Risk Management

The primary goal of risk management is to enhance the


likelihood of success in achieving the organization’s goals and objectives
while minimizing the impact of potential adverse events. Financial
managers must identify, assess, monitor and mitigate various financial
risks, including market risks, credit risks, and operational risks.
6 Financial Management Process
Assessment-
This foundational step involves a detailed analysis of the
existing financial condition of the business. It sets the stage for all
subsequent planning by providing a clear picture of current assets,
liabilities, income, and expenditures.

Goal Setting
Effective financial planning hinges on setting clear,
actionable goals. These goals, rooted in the business’s financial
assessment, should aim for growth, sustainability, and long-term
viability, reflecting the strategic ambitions of the organization.
• Strategic Planning:
Building on the goals set, this step involves crafting a plan that
includes specific financial strategies to achieve the desired outcomes.
This plan acts as a roadmap, detailing necessary actions like budget
adjustments, investment strategies, and resource allocation

Implementation:
With a plan in place, the next step is execution. This phase turns
strategies into action, deploying resources and initiating tasks to
achieve the financial goals outlined earlier.
• Monitoring and Controlling:
As the plan is implemented, continuous monitoring is essential
to ensure adherence to the roadmap and to make adjustments in
response to any financial variances or unexpected challenges.

• Review and Refinement:


The final step involves a thorough review of all steps and
outcomes. This is where the strategy is evaluated against the set
goals, with successes analyzed and areas for improvement
identified. The insights gained here will inform the next cycle of
financial planning, ensuring ongoing improvement.
Importance of Financial
Management
Financial management is one of the most important aspects of a
business. To start and run a successful business, you will need excellent
knowledge of financial management

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