Financial management reflects the way in which funds are used in the business by the entity. In the current report, different objectives of the financial management are discussed in detail. Along with this, need of government assistance in respect to entrepreneurs is discussed briefly. Apart from this, relationship between business planning and business decisions is also explained in detail. At end of the report conclusion section is prepared.
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Critically evaluating purpose of financial management and its implications
Objectives of financial management is given below.
- To ensure adequate availability of funds: The main objective of the financial management is to ensure that adequate amount of fund is available in the business. Finance department of the firm keep an eye on the amount of fund that is available in the business and on that basis determine the time on which fund will require to be raised from the market (Brealey and et.al., 2012). It work in close liaison with the other department of the firm and identify their fund requirement. Accordingly finance needs of business is determined and sources from which fund must be raised in the business is determined.
- To ensure adequate return to the shareholders: The second main objective of the financial management is to ensure that better return will be given to the investors for the risk they are taking by making investment in the business firm. Financial management ensure that loan is taken at low interest rate so that burden of finance cost on the business can be reduced. Moreover, it time to time evaluate firm liquidity position and propose corrective action that must be taken to improve financial performance. Thus, it can be said that financial management help firm in improving its performance.
- To ensure safety of investment: The other main objective of financial management is to ensure safety of investment that is made by the firm ( and Zutter, 2012). In this regard portfolio manager of the business firm time to time evaluate the performance of same and accordingly determine the changes that needs to be made in same. By doing so it is ensured by the manager that investment that is made is safe.
- To prepare sound capital structure: Financial management play an important role in ensuring that there is a sound capital structure in the business. By doing so it is ensured that in case of uncertain economic condition and downturn in economy capital structure will not create any problem for the business firm.
The decisions in respect to these 4 points heavily affect the stakeholders. This is because if funds are adequately available and capital structure is balanced then in that case shareholders get maximum return and creditors receive debt amount on time. Moreover, government receive tax on time and of huge amount. Thus, it can be said that achievement of objective by the business firm positive affect the stakeholders.
Need of assistance by government and its interaction with business planning and decision making
In most of the nations there are number of people that intend to open their business but due to some reasons they abstain from opening their own business. There are number of reasons due to which one feel discouraged to open business in the nation. Some of these reasons are scarcity of finance and other resources (Embrechts, Klüppelberg and Mikosch, 2013). It can be observed that most of entrepreneurs does not have sufficient amount of fund to finance machine purchase and establishment of plants. Due to this reason many people does not open their business or failed to run their business consistently. It is the government that play a lead role and to great extent help people to open and run their business smoothly. Thus, there is a great need of assistance by the government. Under different schemes government provide fund to the young entrepreneurs and promote them to open and operate their business in proper manner. There is close interaction between the assistance that is provided by the government and business planning as well as decisions. This is because when entrepreneurs received a fund for their business they prepare a proper a plan that is followed to allocate business resources among different activity. Varied decisions are taken by the business firm in respect to making best use of resources in the business. Thus, it can be said that there is a very close interaction between assistance by government and business planning as well as decision making.
It must be noted that there is a very close relationship between business planning and the decisions that are taken by the managers in the business (Financial management, meaning objective and functions, 2017). This is because when business plan is prepared lots of things are determined like area where business will be established and items that will be purchased from the different suppliers. In respect to all these things a lots of business decisions are taken by the managers. Managers determine the way in which resources that are limitedly available in the business will be used effectively in the business. By doing so business is managed in systematic way and best return is generated in the business. It can be said that there is a very close connection between the business planning and decisions.
On the basis of above discussion it is concluded that there are multiple objectives of the financial department of the business firm. All these objectives have equal importance for the business firm and same heavily affect the interests of the stakeholders which are shareholders and creditors etc. It can be said that there is a due importance of the financial management for the business firm. It is also concluded that there is a strong need of the finance by the government because it promote individuals to open their business. It is also concluded that there is a very close connection between business planning and firm decisions. Hence, plan must be prepared in proper manner so that effective decisions can be taken in the business.
Books and journals
- Brealey, R.A. and et.al., 2012.Principles of corporate finance. Tata McGraw-Hill Education.
- Embrechts, P., Klüppelberg, C. and Mikosch, T., 2013.Modelling extremal events: for insurance and finance(Vol. 33). Springer Science & Business Media.
- Gitman, L.J. and Zutter, C.J., 2012.Principles of managerial finance. Prentice Hall.