Scope of financial management in 2024
Key scope, types of financial management, factors affecting the financial management and international financial management.
What is financial management?
Financial management is the vital practice of controlling, observing, and setting up the financial resources to attain the business aims and objectives. To put it we can say that, It is the behavior and perception about how the finance is to be maintained. Financial management has building blocks such as budgeting, managing, forecasting, and controlling which result in maximizing the profit. The end goal of financial management is profit maximization.
Scope of financial management
The scope of financial management is very huge and heavily dependent on the enterprises of the financial manager. Nevertheless, financial management is a crucial process by which a company achieves the business's aims and objectives. It helps a company to use its finances in the most profitable way possible.
The scope of finance management is divided into 2 parts
traditional approach
modern approach
Traditional approach to financial management:
This phase was started in early 1920 and lasted till 1940, according to this approach, the financial management was essentially focused on earning more funds to grow the business.
Following the traditional method generally performed by the measures to maximize the profit. This may be done by:
By maintaining the accounting.
By maintaining the legal relationship with the investor and the firm.
Modern approach to financial management:
This phase started in the early 1950s and date, and as per the modern approach financial management is concerned about both acquisition of funds and optimum use of funds. Modern financial management helps in effectively utilizing resources.
What is meant by international financial management?
International financial management is the management of finance in an international business environment; that includes trading and making money through the exchange of foreign currency. It is also known as international finance.
Types of financial management
There are three types of financial management:
- Investment appraisal
- Capital gearing Working
- capital management
Investment appraisal:
Investment appraisal is also known as capital budgeting. It is the process of calculating the cost-to-benefit ratio of capital investment over the life of the investment. This process involves financial decision-making regarding investing in long-term assets.
Capital gearing:
Capital gearing is also known as capital structure and financial structure. Capital gearing is composed of equity share capital, preference share capital, debt and vendor finance. It helps with the certainty of funds utilization for business and prevents over and under-capitalization.
Working capital management:
Working capital management is the process of utilizing the company’s current assets in a way that can help in planning future needs. To set a seal on a company has enough cash to deal with short-term moral imperatives such as short-term debt and unpaid taxes.
Factors affecting the finance management
- Cost: Raising the cost of funds from different sources is different.
- Economy: a country with an unstable political environment will not have a prosperous economy.
- Earning: The income should be stable or there should not be a high risk of earning.
- Business: The business size also affects the ability of the fundraising as the financial decision varies from the large scale businesses to the small scale business.
- Market: The market condition plays a vital role in fundraising. If the market is growing then it is very easy to raise funds but if the market is not then it may affect the fundraising.