Scope of Financial Management

Scope of Financial Management: Financial management includes the performance of finance function which is divided into three main functions for the sake of convenience of study:

  1. The Primary Function
  2. Subsidiary Function
  3. Incidental Function

Scope of Financial Management

These functions are divided on the basis, type, and nature of the function and duties they involve. Various activities like decision-making, activities of non-recurring nature, strategic nature, etc. are involved in these functions. Details of this various scope of financial management are as below:

  1. Primary Function
  2. Subsidiary Function
  3. Routine Function

Primary Function

As the name itself speaks, this function is of executive nature and requires many skills and expert advice. It generally performs activities like the preparation of financial plans, acquiring and allocation of funds, making arrangements for short-term and long-term requirements, and controlling financial activities. Let us study each activity performed in detail.

  1. Financial Planning
  2. Acquisition of Funds
  3. Allocating Funds
  4. Financial Control

Financial Planning

This is the basic function under this. As financial plans are of primary nature and form a base for other departments. The finance manager has to draft financial plans for the enterprise. If the business is new, a sound financial plan should be formulated considering the present and future financial requirements. If the enterprise is ongoing old plans must be reviewed.

These plans should be flexible enough to be changed according to the dynamic environment. After analyzing the need for finance, the finance manager plans to which source should have opted for the acquisition of funds.

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 financial managers which bears less cost of capital. Financial plans are to be reviewed from time to time according to the market situation and needs of the business.

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 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 will project work get started.

The improper allocation may cause a waste of funds. Financial managers should ensure that no activity gets more funds than they need otherwise resources will not be utilized in an optimum way.

Financial Control

Financial control over various financial activities is necessary for the smooth execution of activities. It is a very important function of financial management.

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 Function

After performing primary functions, come subsidiary functions. Details are as follows:

  1. Maintaining Liquidity
  2. Review of Financial Function
  3. Co-Ordination with Other Departments

Maintaining Liquidity

Liquidity means a firm’s financial position to meet its current liability. This is the subsidiary function to maintain adequate liquidity of the business. 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. This activity helps in taking corrective measures if required. Such reports are made based on a comparison with past performances like inter-firm comparison, trend analysis, ratio analysis, and cost-volume-profit analysis.

Co-Ordination with Other Departments

Finance is required in each and every activity. Hence, the finance function is related to every other department. It is the duty of the finance manager to make a balance between the activities of every department. Additional finance required by other departments is also looked at by the finance department.

Routine Function

Finance is also required in day-to-day routine business. These functions are necessary or supplementary to other primary or subsidiary functions. Commonly performed incidental functions are:

  • Maintaining cash receipts, payments, and checking cash balances.
  • Maintaining accounts and keeping records
  • Conducting internal audit
  • Making public relation
  • Keeping in mind the present governmental regulations.
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FAQs About Scope of Financial Management

What is the scope of financial management?

Scope of Financial Management: Financial management includes the performance of finance function which is divided into three main functions for the sake of convenience of study: The Primary Function Subsidiary Function Incidental Function.