Objectives of Financial Management in Contemporary Business Environment
Objectives of Financial Management in Contemporary Business Environment
(1) Financial planning: The main responsibility of financial management is to ensure the adequate supply of funds for the smooth running of the business. For this purpose, financial planning is necessary, i.e., deciding the time when funds are required, the sources of raising funds and the investment patterns so that the organization may meet its obligations properly and maintain its goodwill in the market.
(2) Provide support for decision making: Financial management provides managers with the information and knowledge they need to take three important types of decisions and understand their financial implications before they are made. The three important decision types are (1) Investment Decisions, (2) Financing Decisions and (3) dividend Decisions.
(3) Ensure the availability of timely, relevant and reliable financial and non-financial information: Financial management gives managers the information that either forms the basis for calculating financial information, or is used for management control and accountability purposes.
(4) Manage risks: Financial management is an important component of risk management and is used to identify and manage various risks associated with business such as operational risks, strategic risks, social risks, legal risks, political risks and environmental risks.
(6) Use resources efficiently, effectively and economically: Financial management is necessary to ensure that an organization has enough resources to carry out its operations, and that it uses these resources efficiently, effectively and economically.
(7) Strengthen accountability: Financial management is essential for an organization to understand and demonstrate how it has used the financial resources entrusted to it and the results it has accomplished with them.
(8) Provide a supportive control environment: Financial management creates an organizational climate that supports the achievement of the financial objectives of the business. Organizational climate means a climate that includes commitment from senior management, shared values and ethics, communication and organizational learning.
(8) Legal compliance and safeguard of assets: There are laws, taxes and rules and regulations that cover each and every move and policy of the organization. Good financial management helps to develop a sound legal framework. It also provides the organization with a system of controls for assets, liabilities, revenues and expenditures. These controls help to protect against fraud, financial negligence, violation of financial rules and losses of assets or public money.
(9) Other objectives: Over and above, the objectives sated above, there are certain other objectives of financial management in the contemporary business environment. These are as follows:
a) Responsibilities towards the owners: Shareholders or stock-holders are the real owners of the organization. Not only the financial health of the organization should be maintained, but also the owners should be adequately rewarded for the risk they have taken and the capital they have provided.
b) Taking care of the employees: Financial management must try to produce a healthy organization that is capable of maintaining regular employment at satisfactory rate of pay under favourable working conditions. The long term financial interests of the employees should be taken care of.
c) Taking care of the other stakeholders: Apart from shareholders and employees there can be other stakeholders of an organization such as creditors, debtors, suppliers, banks, financial institutions, government, other organizations and so on. The general public who are the end users or the consumers can also have an interest in the organization. Sound financial management ensures overall satisfaction of the interests of all the stakeholders.
d) Wealth maximization: It has been argued that the main goal of the finance function is wealth maximization and not profit maximization. Once a business achieves its goals of wealth maximization, the other goals may be achieved automatically.
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