Objectives of Financial Management

In a nutshell, financial management can be said to be a management activity of a firm’s finances. Financial management is the vast aspect of business administration. Owing to this, business organisations often dedicate a sole sector to financial management. 

Moreover, financial management includes many objectives, all of them directly or indirectly head to business development. It is essential to learn all the motives behind financial management activities. Hence, to make it easy for you, here’s a complete study material on the objectives of financial management.   

Objectives of Financial Management: Overview

Financial management is one of the pillars of business administration. Financial management is carried out with numerous objectives that contribute to business development through controlling finances. Before moving further, let’s glance at what financial management is.

What is Financial Management?

Financial management is a managerial activity that manages the finances of a business. It includes directing, planning, organising, and controlling all the business finances. It is carried for maximising the use of present finances. 

The Primary Objective of Financial Management

Finance is given a whole different sector in almost all business organisations. The primary goal of financial management is to carry out all the necessary activities and analyses to maximise the utility of finances and result in profitability. Moreover, the financial sector is also responsible for executing all the essential operations properly to meet the goals more efficiently. Also, the goals of financial management don’t just end here; there are numerous objectives of financial management.

Objectives of Financial Management

Financial management indirectly means managing capital, which is the backbone and most important part of the business. Though financial management is one of the most critical business aspects, all objectives of financial management are carried out directly or indirectly to increase the capital via retaining profits and maximising capital utility. 

Maximisation of profit and wealth

Profit is the centre of business. Business administration establishes a team of finance and revenue managers to enhance profitability. The associated board is given the responsibility to manage to provide a positive rate of profit for both longer and shorter tenures. Further, the profit builds the wealth for business, and a retained profit can again be contributed into business to develop all aspects. Both these objects of financial management can be said as ‘scaling the business.’   

Establish a capital structure

The main objective of financial management is to create a capital structure. The arrangement of all different types of funds is strategically made, and this structure helps determine which capital fund should be raised for the operations and development of business. 

Reduce your capital costs

This objective also falls under establishing proper capital structure. The expected returns are calculated in this objective, and capital is invested according to it. In simpler words, we can also say it is the proper utility of money.

Enhanced mobilisation

Mobilisation can manage all the capital sources, including equity and debt funds. The objective is to regulate the finances across businesses and make optimum use of them. Moreover, mobilisation also includes the addition of new capital sources.

Accurate assessment of overall budgetary needs

Financial management also aims to make an outline that depicts all the required initial finances. This can save the business from facing a financial crisis or a sudden shortage of funds. However, calculating the essential capital required to run a business or perform operations is also focused throughout the management. 

Keeping a healthy financial flow

Financial management accounts for all the income and expenses of a business, and though, it also governs responsibility to manage the cash flow. A balanced inflow and outflow of liquidity are one of the primary goals of financial management. This objective can also be described as prohibiting cash overflow and underflow.

Establishing reserves

The establishment of reserves can also be targeted inside the activity, and a business with higher reserves can use them to expand the business. In some instances, reserves also help in sudden emergencies or uncertainties. The dividend payout intervals are decided through financial management, and they establish reserves. 

Business Survival

Financial management’s principle purpose is to ensure an organisation’s sustainability. Businesses must survive in a marketplace, and the correct method is to manage their business capital effectively. Managers must make significant judgments after conducting extensive research. If necessary, they may communicate with various internal and external stakeholders or agencies.

Conclusion

To sum it up, financial management is the activity of managing finances undertaken to make the most of the capital of the business. It also includes the growing capital sources and maintaining cash flow in a company. Moreover, other goals of financial management include, maximisation of profit and wealth, establishment of capital structure & reserves, reducing capital costs, enhancing mobilisation, and lastly, giving the outline of financial needs of the future.