Future Scope of Financial Management

People with a non-commerce background may think that financial management must be a dull field involving endless balance sheets and relentless talking about money. However, financial management is more than just that. Importance of financial management entails managerial functions and handling an organization’s financial resources. Financial Managers are the backbone of firms, dealing with the most crucial business aspect – planning and organizing funds. This article will discuss the importance and scope of financial management in India and  worldwide.

What Is Financial Management?

What is financial management, you may ask? So, financial management process includes planning for the future of an individual or a business enterprise to ensure a positive cash flow. Fund management is the application of general management to the financial resources of an enterprise.

Financial Management Cycle

The circle for financial management process is the cycle of workflow in which these processes are based around;

• Financial Planning: Planning is done based on the decided allocation of resources.
• Planning Finance: Making arrangements towards funds and investments.
• Dividend Decision: Deciding the amount of profit to be distributed.
• Working Capital Management: Short-term assets and liabilities management.
• Protocol: To set policies and procedures in place for financing.

Importance of Financial Management

Financial management is vital for various reasons:

• Proper financial management ensures the economic growth and stability of an organization.
• Financial Managers help an organization in the procurement of funds for business operations.
• Financial Managers help organizations utilize money more efficiently.
• A fundamental responsibility of a Financial Manager is to suggest the right investment opportunities to the company. They lower the risk factor in any kind of investment.
• Financial Managers should make the right decisions to maximize their company’s profit.
• Managers help the company minimize the taxes any business has to pay.

Scope of Financial Management

Nature of financial management encompasses several key areas:

• Planning: Setting financial goals and outlining steps to achieve them.
• Budgeting: Creating a detailed financial plan to allocate resources efficiently.
• Financial Decision: Deciding on investment and financing options.
• Dividend Decision: Establishing policies for profit distribution.
• Working Capital Management: Ensuring the organisation has sufficient short-term assets to cover its short-term liabilities.

Planning

Yes, planning in simpler terms is forecasting the future financial management cycle needs setting goals for it and deciding the best strategies to achieve that. Good planning enables an organisation to realise its financial objectives while bad or no planning will not.

Budgeting

The capital budgeting is sketching up a financial plan with resources being distributed across all activities and departments within an organisation. It helps in the cost control and efficient utilisation of funds.

Financial Decision

The need for money makes financial decisions which in turn govern the capital structure and therefore assets of a company These decisions are based on a combination of investment (capital budgeting) decisions, financing decisions debt or equity and dividends profit distribution.

Dividend Decision

The dividend decision lays out how much of the profits will be shared with shareholders and what percentage to keep for growth. This decision affects how satisfied investors will be and what the company will have to reinvest.

Working Capital Management

Definition of Working Capital Management: The management or the control over a company’s short-term assets and liabilities to ultimately ensure it can continue its operation is called working capital. That means managing inventories and accounts receivable and payable.

Procedures

Another importance of financial management procedures is that they are the standardised methods and protocols informing organisations how to efficiently and legally manage expenses, billing, and report preparation under various government agency regulations. These procedures assist in making sure that the financial reporting and decision-making are followed consistently and accurately as required.

Managing and Accessing Risk

Risk management and assessment include discovering conceivable financial risks management and implementing resolutions to avoid them. There are different types of risks such as:

1. Market Risk: the threat of losing capital due to changes in market circumstances.
2. Credit Risk: the threat of not getting paid back the credits given.
3. Liquidity Risk: the threat of being incapable of paying sudden short-term debts or emergencies.
4. Operation Risk: the threat of loss from deficient operations or unsuccessful internal systems. 

The functions of financial management are based on specific characteristics termed the nature of financial management. It is an active method focused on continuous study, planning and reviewing of financial resources to achieve a planned and efficient goal. It includes numerous financial activities to generate the most out of it and present susceptibility in the organisation.

Nature of Financial Management

The nature of financial management is dynamic, involving continuous analysis, planning, and monitoring of financial resources to achieve organizational goals. It integrates various financial activities and ensures the optimal use of financial resources.

Objectives of Financial Management

The primary objectives of financial management are:

• Profit Maximization: Ensuring the company generates maximum profits.
• Wealth Maximization: Increasing the value of the company for shareholders.
• Liquidity Management: Maintaining adequate liquidity to meet obligations.
• Efficient Resource Allocation: Ensuring optimal use of financial resources.

Functions Of Financial Management

The key functions of financial management include:

• Investment Decision: Deciding where to invest funds to maximize returns.
• Financing Decision: Choosing the best sources of finance.
• Dividend Decision: Determining the distribution of profits.
• Liquidity Management: Ensuring sufficient liquidity to meet obligations.
• Financial Planning and Analysis: Planning and analyzing financial performance.

Types of Decision in Financial Management

Financial management involves several types of decisions, including:

• Investment Decisions: Choosing the right investment opportunities.
• Financing Decisions: Selecting the appropriate mix of debt and equity.
• Dividend Decisions: Deciding the proportion of earnings to distribute as dividends.
• Working Capital Decisions: Managing short-term assets and liabilities/

A Career in Financial Management

Financial management has a broad scope for those looking to make a career in this field. These career opportunities are not just lucrative but come with exciting challenges. Various companies, governments, and PSUs hire corporate finance professionals across departments. Finance Managers can also join banks, asset management companies, investment companies, brokerage firms and insurance companies. 

Even sectors like technology, retail, real estate, and other non-financial industries hire executives with sound financial management skills.

Demand for skilled Financial Managers specializing in fund management and risk management is high in the job market. 

The salary of Financial Managers varies based on different parameters such as experience and skillset. On average, the median salary of a finance executive in India is INR 10,11,274 per year. Professionals with advanced degrees like Chartered Financial Analyst (CFA) Course & US CMA Course (Certified Management Accountant) have a better scope of getting high-paying jobs.

Difference Between Traditional and Modern Approach of Financial Management

Here’s the difference between traditional and modern approach of financial management.

Traditional Approach

The traditional approach to financial management focused primarily on:

• Procurement of funds.
• Managing financial resources.
• Emphasizing on external financial transactions.

Modern Approach

The modern approach is more comprehensive and includes:

• Resource Allocation: Optimal use of resources.
• Risk Management: Identifying and mitigating financial risks.
• Strategic Planning: Long-term financial planning and strategy.
• Financial Performance: Continuous evaluation of financial performance.

Modern Approach of Financial Management

The modern approach of financial management involves strategic planning, analysis, and control. It integrates financial decision-making with the overall strategic objectives of the organization, ensuring sustainable growth and value creation.

Goals of Financial Management

The primary goals of financial management are:

• Profit Maximization: Ensuring the company generates maximum profits.
• Wealth Maximization: Increasing the value of the company for shareholders.
• Sustainability: Ensuring long-term financial health.
• Liquidity: Maintaining sufficient liquidity to meet short-term obligations.

Conclusion

Financial management is a critical function in any organization, ensuring efficient utilization of resources, Financial risk management, and achievement of financial goals. Understanding its principles, processes, and approaches is essential for anyone pursuing a career in finance.

FAQ’s on Future Scope of Financial Management:

What is the nature and scope of financial services?

Financial services encompass a wide range of activities, including banking, insurance, investment management, and financial planning. The scope includes providing financial products, advisory services, and managing financial risks.

What is the scope of financial management?

The scope of financial management includes investment decisions, financing decisions, dividend decisions, and working capital management. It also involves strategic financial planning, risk management, and financial analysis.

What are the 5 A’s of financial management?

The 5 A’s of financial management are:

• Anticipation: Predicting future financial needs.
• Acquisition: Procuring necessary funds.
• Allocation: Allocating resources efficiently.
• Administration: Managing financial operations.
• Analysis: Evaluating financial performance.

What is the scope of finance?

The scope of finance includes personal finance, corporate finance, public finance, and international finance. It involves managing funds, investing, financial planning, and risk management.

Partham Barot is an ACCA-certified professional. showcasing his expertise in finance and accountancy. he’s revolutionising education by focusing on practical, real-world skills. Partham’s achievements underscore his commitment to elevating educational standards and empowering the next generation of professionals.