The topic of financial management is of enormous importance to academicians and practitioners. It is of enormous interest to the academicians due to the fact that the topic is still developing, and there are still many areas where disagreements exist and no undisputed resolutions have yet been arrived.
The practitioners are involved in this subject matter for the reason that amongst the most critical decisions of the firm are those which relate to finance, and an understanding of financial management provides them with a theoretical and logical insight to construct these conclusions.
Functions of Financial Management
Financial management includes the performance of the finance function which is divided into three main functions for the sake of convenience of study.
These are the three major categories of functions of financial management:
Primary Functions of Financial Management
As the name itself speaks, this function is of executive nature and requires a lot of skills and expert advice. Let’s study the primary functions of financial management:
Financial Planning
This is the basic function under this. As financial planning is of primary nature and forms the base for other departments. The finance manager has to draft financial plans for the enterprise.
How much should be borrowed from outside financial institutions and how much from internal sources? A perfect combination of debt and equity mix is carried out by a financial manager who bears less cost of capital.
Acquisition of Funds
This is the crucial stage of financial planning. Funds are acquired from various sources which were decided in the primary function. All the formalities of acquiring funds are shown under this. Every source has its own cost which is to be looked upon.
Allocating Funds
After acquiring funds, they are allocated to various assets, activities, projects, etc. This is a very important function because only after allocating funds project work will get started.
Financial Control
The finance manager make records, store information and make reports of various activities. This enables one to make comparative statements with past performances and the finance manager can take corrective functions if he feels so.
Subsidiary Functions of Financial Management
After performing primary functions, come subsidiary functions. Now look at the subsidiary functions of financial management:
Maintaining Liquidity
Liquidity means a firm’s financial position to meet its current liabilities. Businesses should be strong enough to meet their short-term liabilities. Cash inflows and outflows should be balanced properly to maintain liquidity.
Review of Financial Function
Financial performance should be reviewed and presented in front of the board. Such reports are made based on comparisons with past performances like inter-firm comparison, trend analysis, ratio analysis, and cost-volume-profit analysis.
Coordination with Other Departments
Finance is required in each and every activity. Hence, the finance function is related to every other department.
Routine Functions of Financial Management
Finance is also required in day-to-day routine business. Commonly performed incidental functions are:
- Conducting internal audit.
- Maintaining accounts and keeping records.
- Making public relations.
- Keeping in mind the present governmental regulations.
- Maintaining cash receipts, payments, and checking cash balances.
FAQs About Functions of Financial Management
What are the functions of financial management?
The following are the major three categories of functions of financial management:
1. Primary Functions: Financial Planning, Acquisition of Funds, Allocating, Funds Financial Control.
1. Subsidiary Functions: Maintaining Liquidity, Review of Financial Function, Coordination with Other Departments.
