Significance of Financial Management
[Financial Management Notes for NEP and CBCS Pattern]
Significance of financial management in the present day business world
The significance of financial management can be discussed from the following angles:
1) Importance to Organizations
a) Business
organizations: Financial management is important to all types of business
organization i.e. Small size, medium size or a large size organization. As the
size grows, financial decisions become more and more complex as the amount
involves also is large.
b) Charitable
organization / Non-profit organization / Trust: In all those organizations,
finance is a crucial aspect to be managed. A finance manager has to concentrate
more on collection of donations/ revenues etc. and has to ensure that every
rupee spent is justified and is towards achieving Goals of organization.
c) Government
/ Govt. or public sector undertaking: In central/ state Govt, finance is a key/
important portfolio generally given to most capable or competent person.
Preparation of budget, monitoring capital /revenue receipt and expenditure are
key functions to be performed by the person in charge of finance. Similarly, in
a Govt or public sector organization, financial controller or Chief finance
officer has to play a key role in performing/ taking all three financial
decisions i.e. raising of funds, investment of funds and distributing funds.
d) Other
organizations: In all other organizations or even in a family finance is a key area
to be looked in to seriously by a competent person so that things do not go out
of gear.
2) Importance to all Stake holders
a) Shareholders: Shareholders are
interested in getting optimum dividend and maximizing their wealth which is
basic objective of financial management.
b) Investors / creditors: these stake
holders are interested in safety of their funds, timely repayment of the
principal amount as well as interest on the same. All these aspect are to be
ensured by the person managing funds/ finance.
c) Employees: They are interested in
getting timely payment of their salary/ wages, bonus, incentives and their
retirement benefits which are possible only if funds are managed properly and
organization is working in profit.
d) Customers: They are interested in
quality products at reasonable rates which are possible only through efficient
management of organization including management of funds.
e) Public: Public at large is
interested in general public welfare activities under corporate social
responsibility and this aspect is possible only when organization earns
adequate profit.
f) Government: Govt is interested in
timely payment of taxes and other revenues from business world where again
efficient finance manager has a definite role to play.
g) Management: Management is
interested in overall image building, increase in the market share, optimizing shareholders
wealth and profit and all these aspect greatly depends upon efficient
management of financial resources.
3) Importance to other departments of an organization
A large size company, besides finance
dept., has many departments like
a) Production
Dept.
b) Marketing
Dept.
c) Personnel
Dept.
d) Material/
Inventory Dept.
All these departments look for
availability of adequate funds so that they could manage their individual
responsibilities in an efficient manner. Lot of funds are required in
production/manufacturing dept. for ongoing / completing the production process
as well as maintaining adequate stock to make available goods for the marketing
dept. for sale. Hence, finance department through efficient management of funds
has to ensure that adequate funds are made available to all department and
these departments at no stage starve for want of funds. Hence, efficient
financial management is of utmost importance to all other department of the
organization.
Also Read: Introduction to Financial Management Important Questions for Upcoming Exams
Q. Explain the objectives of financial management in modern era. 2012, 2013, 2014, 2015, 2016, 2021
Q. Explain the importance of financial management in modern era. 2012, 2013, 2014, 2015, 2016
Post a Comment
Kindly give your valuable feedback to improve this website.