The Scope of Financial Management

Financial management can be broadly defined as the management of the finances of an organization in order to achieve its financial objectives. Financial management mainly involves decisions regarding investments, financing and dividends. Here in this site we try to show you some summary financial management notes so that you can have a better understanding of the scope of the financial management.

There are two key objectives of financial management as given below in the financial management notes.

A.      Financial planning
Financial planning refers to ensuring that an organization has enough funds to meet the requirements of the organization in the short, medium & long term. The financial manager will need to plan to ensure that enough funding is available at the right time to meet the needs of the organization for short, medium & long term capital requirements.

B.      Financial control
Financial control is relevant to the funds that have been raised. For instance, ensuring assets are used efficiently is a part of financial control. The financial manager will need to consider whether the organization is meeting its objectives & the assets are being used efficiently.
For this purpose, the financial manager will have to compare the actual & forecast performance.

Scope of the financial management is considered to include the following key aspects, which are discussed in little more detail later.

1.      Financing decisions
Various means of acquiring fund, selecting the most suitable means of funding & their risk, etc. are generally discussed under this topic. Following key sub-topics can be identified in our financial management notes.

A.      Equity financing
B.     Debt & near-debt financing

2.      Investment decisions
Selecting a suitable investments, risk analysis, capital rationing, lease or buy decisions, etc. come under this topic. Following sub topics are generally covered by financial management.

A.      Project appraisal
B.      Capital rationing
C.      Leasing decisions

3.      Working capital management

Proper working capital management is crucial for short term survival of any company. Various techniques of the management & analysis of creditors, debtors, cash & stocks including ratio analysis are discussed under this. Most common areas covered here are as follows:

A.      Liquidity of a company
B.      Management of debtors & creditors
C.      Management of stocks
D.      Cash & treasury management

4.      Business valuation

Various types of business and share valuation techniques of both quoted and non-quoted companies and their suitability are discussed here. Following are most widely covered areas in
financial management.

A.      Valuation of debt & market efficiency
B.      The cost of capital
C.      Portfolio theory
D.      The capital asset pricing model (CAPM)
E.       Capital structure

5.      Financial risk management

Financial risk management is an important topic discussed in financial management notes. Various types of risks, their measurement and mitigating techniques such as below are discussed here.

A.      Foreign exchange risk
B.      Interest rate risks
C.      Financial Engineering