Financial Management Overview

Hello students, welcome to the session on Organizational Structure of Financial Management. Today we are going to highlight on meaning of financial management, nature and scope of financial management, objectives of financial management, aspects of financial management, organizational structure, duties and responsibilities of finance executives and various fields of finance. Now, let us understand the meaning of financial management first. Finance management is an integral part of the entire management activity which functions in association with and parallel to various departments and segments of a business. Financial management is the management of firm's financial resources in relation to its acquisition and application. It is that branch of management which deals with the procuring, financing and managing business assets. To achieve the objectives of the concern, managing the finance for business and industry is known as financial management. Now, we will discuss the nature of financial management followed by the scope of financial management. Financial management is raising of funds required to finance fixed assets and current assets. Fund management is a finance which is done with a certain financial goals in mind. In financial management, planning the means of raising the funds is supported by control over its uses and applications. Financial decisions are taken keeping in view individual motives as well as organizational goals and objectives. financial management is not an outsourcing task, but it is done within the organization as an integral part of other functional areas of management. Let us understand the scope of financial management. Financial management focuses on ratios, equities and debts. It is useful for portfolio management, distribution of dividend, capital raising, hedging and looking after fluctuations in foreign currency and product cycles. Financial managers are the people who do the research and based on that research they decide what sort of capital to be obtained in order to fund the company's assets as well as maximizing the value of the firm for all the stakeholders. It also refers to the efficient and effective management of money that means funds. in such a manner as to accomplish the objectives of the organization. It is the specialized function directly associated with the top management. Now, a question may come to your mind, what is the role of financial management in any business unit? So, the role is to determine the capital requirement of business both short term and long term. To determine the capital structure of the company and also the sources from where the required capital will be raised keeping in view the risk and return matrix. To decide about the allocation of funds into profitable avenues keeping in view their safety as well. To decide about the appropriation of profits. to ensure efficient management of cash in terms of liquidity and profitability, to exercise overall financial controls in order to promote safety, profitability and conservation of funds. As the role of financial management is clear, now we will focus on the objectives of financial management. The very first objective of financial management is profit maximization. Profit maximization happens when marginal cost is equal to marginal revenue. This is the main objective of financial management. Survival of company is an important consideration when the financial manager makes any financial decision. One incorrect decision may lead company to be bankrupt. Maintaining proper cash flow is a short run objective of financial management. It is necessary for an organization to pay day to day expenses. such as raw material, electricity bills, wages, rents, etc. So, for this, a good cash flow ensures the survival of company. Minimization on capital cost in financial management can help operations to gain more profit. Last and the most important objective of financial management is maximization of shareholders wealth. It is an advanced goal compared to profit maximization. So, shareholders wealth is calculated as number of shares possessed by a shareholder multiplied by market price of a share. If there is a proper financial management, the shareholders wealth will maximize for sure. It is very important to throw light on aspects of financial management. So, there are two aspects that form the basis of financial management, procurement of funds and utilization of funds. From the diagram mentioned here, We can understand that the firm acquires funds from an array of sources such as debentures, bonds, owner funds that means equity shares and preference shares, commercial banks, venture capital, angel financing, higher purchases, leasing and so on. Utilization of funds is the second important aspect of financial management. It means the deployment of funds in manner that is the funds are to be invested in such a way that it yields good returns for the business without posing a threat to its overall solvency. Simply to put financial management deals with raising finance for the business to meet short-term and long-term requirements, mobilization of funds, control over its use and creating a balance that is trade-off between risk and returns. Now, let us study an organizational structure of finance. There is no definite pattern of organizational structure of finance. It varies from organization to organization depending on its characteristics such as the nature of business, size of business, finance involved and so on. In smaller organizations, the operations are relatively less complicated and simple, hence may not require an executive to look after the finance function. Generally, the proprietor or partners look after all the functional areas like production, marketing, finance, etc. But in bigger concerns, the execution of finance function is a specialized task and is handled Bye. an executive who may be in the form of the treasurer, finance controller, finance manager, vice president finance and so on. The diagram shows that the board of directors are at the top level of management. They direct the functioning of chief executive officer of an organization. The vice presidents are directed by CEOs means chief executive officers. Controllers and treasurers are directed by vice president finance. Now, we will discuss the hierarchy. Board of directors is a group of people who jointly supervise the activities of an organization which can be profit-making organization, non-profit organization or a government organization. The powers, duties and responsibilities of board of directors are determined by government regulations and organizations own constitution and bylaws. The board of directors appoints the chief executive officer commonly known as CEO of the corporation and sets out the overall strategic direction. Typical duties of board of directors include governing the organization by establishing broad policies and setting out strategic objectives, selecting, appointing, supporting and reviewing the performance of the chief executive officer, ensuring that availability of adequate financial resources, approving annual budgets and accounting to the stakeholders for the organization's performance, setting the salaries, compensation and the benefits of senior management also. Hence, it is clear that Board of directors take the main financial decisions. They may delegate the powers to the executive committee comprising of managing directors, directors and finance officer of the company. Now let us discuss the role of chief executive officer. Chief executive officer is the main person responsible for managing a company who is sometimes also the company's president. or chairman of the board. The CEO is the most senior corporate executive or administrative officer in charge of managing an organization. CEOs lead a range of organizations including public and private corporations, non-profit organizations and even some government organizations. The CEO of a corporation or company typically reports to the board of directors and is responsible for maximizing the value of the entity which may include maximizing the share price, market share and the revenues generated. In the non-profit and government sector, CEOs typically aim at achieving outcomes related to the organization's long-term and short-term objectives such as profit maximization, wealth maximization and so on. Vice presidents of finance and chief financial officers perform very similar duties. Their titles can be interchangeable depending upon the size of a given company. When both positions exist in a company, CFOs are generally considered to be more strategically oriented and forward thinking whereas, forward thinking is a very important part of our life. Finance-wise, presidents ensure that their respective companies' finances are managed appropriately and effectively. However, both positions report to and work very closely with the president and CEO of a given company. Generally speaking, they both make sure that their companies' finances are in check and And they run projections. As to what the business might do in future, depending on the size of their company, they may appoint a team of accountants for continual monitoring of company's financial figures. The financial figures are usually shared to the current and prospective investors, board of advisors and other executives within the company. finance officers and Finance vice presidents also ensure that the work done within their company aligns with the financial future and strategies that have been planned out for the company. Vice president finance and chief finance officer perform tasks like to oversee all financial related matters where depth and scope is relative to the size of the company. To create financial plans as defined by the board of directors. To direct financial strategies, analysis, forecasting and budget management. To direct all aspects of accounting operations such as receivables, payables, payroll and financial reporting. Hence, finance vice president is generally the in charge of credit and collection accounting. investment and audit departments. He is responsible for preparing annual financial reports as well. He reports directly to the president and board of directors. In the chart, you can see that treasurers and controllers report directly to the vice president finance. Now, let us understand the meaning of the controller and the treasurer. So, the controller is a person who directs the preparation of financial reports that summarize and forecast the organization's financial position such as income statements, balance sheets and so on. He also analyzes future earnings or expenses. The controllers also are in the charge of preparing special reports required by government agencies that regulate businesses. Controllers are mainly responsible for accounting, audit and budget departments. Credit managers, inventory managers and capital budgeting managers directly report to the controller. Now, let us understand the meaning of credit managers, inventory manager and capital budgeting manager. So, credit managers are specifically responsible for the firm's credit business. They set credit rating criteria, determine credit ceilings and monitor the collections of past due accounts. An inventory manager is in charge of inventory in a warehouse or similar facility. Inventory managers lead a team of inventory or warehouse workers to receive and record new stock as it comes in and move out onto trucks or shelves as the requirement. Capital budgeting is a method of analyzing and comparing substantial future investments and expenditures to determine which ones are most worthwhile. Each project is ranked by its potential future return. So the company management can choose which one to invest in first. So capital budgeting manager is responsible for analyzing return on investments. Treasurers and finance officers direct their organization's budget to meet its financial goals. They are mainly responsible for the investment of funds. They carry out strategies to raise the capital by issuing stocks or bonds to support the expansion of the firm. They also develop financial plans for mergers. Mergers means two companies joining together and acquisition means one company buying another. So, they develop financial plans for mergers and acquisitions. Cost accountant, financial accountant and tax accountant directly report to the controller. Cost accountants provide data about the cost of producing the company's products or services. This information enables managers to project the profitability of future projects. products or services. This data provides the answers to the cost of standard units of production, labor, cost of material and the cost of equipments used in the production. Without this information, company managers do not have the data they need to correctly project the risk and rewards of a given capital expansion program. The financial accountant is a person who prepares profit and loss account, balance sheet, cash flow and fund flow statements of the company so that stakeholders can evaluate company's performance. Tax accountants ensure that companies and individuals comply with tax laws by filing income tax returns. accounts. Some tax accountants also offer tax planning advice to their clients. Generally, the organization of finance is centralized unlike other business functions. The reason for centralized finance function is that financial decisions are more crucial which decide the failure or the survival of the organization. The solvency of an organization. is greatly affected by the financial decision. A wrong financial decision may result into financial crisis that may affect liquidity of the firm. The most important point to be noted is that finance function is never outsourced. Thus, finance is considered as the function of utmost important due to the reasons. financial decisions are the most crucial ones on which the survival or the failure of organization depends. And the next one is financial decisions affect the solvency position of the organization and a wrong decision in this area may land the organization into crisis. Now let us understand the duties and responsibilities of finance executives. All the major financial policy decisions are taken by the executive committee. While routine financial decisions are delegated to the lower level officer in the company. On the basis of the scope of the finance, the various duties and responsibilities which a finance executive has to fulfill can be discussed like recurring duties and non-recurring duties. So, recurring financial duties encompass all such financial activities that are carried out regularly for the efficient conduct of a firm. Recurring duties include deciding the financial needs, raising the funds required, allocation of the funds, allocation of the income, control of funds, evaluation of performance in terms of financial statements, corporate taxation and so on. Whereas, non-recurring duties refer to the to those financial activities that a finance manager has to perform very infrequently. It includes preparation of financial plan at the time of promotion of the enterprise, financial readjustments in times of liquidity crisis, valuation of the company at the time of merger or reorganization of the company and similar activities are of episodic character. It is very necessary for us to understand different fields of finance. There are various fields in which the finance function may operate. In each field, financial executive deals with the management of money and claims against money. The various fields can be stated like business finance, corporate finance, public finance and private finance. Now, we will talk about business finance. Business finance is a very broad term. It covers all the activities carried on with the intention of earning profits. Thus, business finance covers the study of finance function in the areas of business which includes trade as well as industry. Next is corporate finance. Corporate finance is a part of business finance. It deals with the financial operations carried on by corporate enterprise from the stage of its inception to the stage of its growth and expansion. International finance is the another field. So, international finance is the study of flow of funds beyond national boundaries and developing the methods to handle these funds more effectively. This may become crucial. as it involves exchange of currencies. At the same time, the governments of nations may have close watch and control on these transactions involving foreign currencies. Public finance deals with the financial matters of the government. It becomes crucial as the government deals with large sum of money which can be raised through collection of taxes. The government do not operate with the objective of earning profits, but to accomplish social and economic objectives. Private finance deals with the financial matters of non-government organizations. So, to conclude, it may be stated that all the functions or activities of the business are ultimately related to finance. The success of the entire organization depends on how best all these functions are coordinated. Thank you.

Financial management is the management of firm's financial resources in relation to its acquisition and application. It is that branch of management which deals with the procuring, financing and managing business assets. To achieve the objectives of the concern, managing the finance for business and industry is known as financial management.

Now, we will discuss the nature of financial management followed by the scope of financial management. Financial management is raising of funds required to finance fixed assets and current assets. Fund management is a finance which is done with a certain financial goals in mind.

In financial management, planning the means of raising the funds is supported by control over its uses and applications. Financial decisions are taken keeping in view individual motives as well as organizational goals and objectives. financial management is not an outsourcing task, but it is done within the organization as an integral part of other functional areas of management.

Let us understand the scope of financial management. Financial management focuses on ratios, equities and debts. It is useful for portfolio management, distribution of dividend, capital raising, hedging and looking after fluctuations in foreign currency and product cycles. Financial managers are the people who do the research and based on that research they decide what sort of capital to be obtained in order to fund the company's assets as well as maximizing the value of the firm for all the stakeholders. It also refers to the efficient and effective management of money that means funds.

in such a manner as to accomplish the objectives of the organization. It is the specialized function directly associated with the top management. Now, a question may come to your mind, what is the role of financial management in any business unit?

So, the role is to determine the capital requirement of business both short term and long term. To determine the capital structure of the company and also the sources from where the required capital will be raised keeping in view the risk and return matrix. To decide about the allocation of funds into profitable avenues keeping in view their safety as well. To decide about the appropriation of profits. to ensure efficient management of cash in terms of liquidity and profitability, to exercise overall financial controls in order to promote safety, profitability and conservation of funds.

As the role of financial management is clear, now we will focus on the objectives of financial management. The very first objective of financial management is profit maximization. Profit maximization happens when marginal cost is equal to marginal revenue. This is the main objective of financial management. Survival of company is an important consideration when the financial manager makes any financial decision.

One incorrect decision may lead company to be bankrupt. Maintaining proper cash flow is a short run objective of financial management. It is necessary for an organization to pay day to day expenses. such as raw material, electricity bills, wages, rents, etc.

So, for this, a good cash flow ensures the survival of company. Minimization on capital cost in financial management can help operations to gain more profit. Last and the most important objective of financial management is maximization of shareholders wealth.

It is an advanced goal compared to profit maximization. So, shareholders wealth is calculated as number of shares possessed by a shareholder multiplied by market price of a share. If there is a proper financial management, the shareholders wealth will maximize for sure.

It is very important to throw light on aspects of financial management. So, there are two aspects that form the basis of financial management, procurement of funds and utilization of funds. From the diagram mentioned here, We can understand that the firm acquires funds from an array of sources such as debentures, bonds, owner funds that means equity shares and preference shares, commercial banks, venture capital, angel financing, higher purchases, leasing and so on.

Utilization of funds is the second important aspect of financial management. It means the deployment of funds in manner that is the funds are to be invested in such a way that it yields good returns for the business without posing a threat to its overall solvency. Simply to put financial management deals with raising finance for the business to meet short-term and long-term requirements, mobilization of funds, control over its use and creating a balance that is trade-off between risk and returns.

Now, let us study an organizational structure of finance. There is no definite pattern of organizational structure of finance. It varies from organization to organization depending on its characteristics such as the nature of business, size of business, finance involved and so on. In smaller organizations, the operations are relatively less complicated and simple, hence may not require an executive to look after the finance function.

Generally, the proprietor or partners look after all the functional areas like production, marketing, finance, etc. But in bigger concerns, the execution of finance function is a specialized task and is handled Bye. an executive who may be in the form of the treasurer, finance controller, finance manager, vice president finance and so on.

The diagram shows that the board of directors are at the top level of management. They direct the functioning of chief executive officer of an organization. The vice presidents are directed by CEOs means chief executive officers.

Controllers and treasurers are directed by vice president finance. Now, we will discuss the hierarchy. Board of directors is a group of people who jointly supervise the activities of an organization which can be profit-making organization, non-profit organization or a government organization. The powers, duties and responsibilities of board of directors are determined by government regulations and organizations own constitution and bylaws.

The board of directors appoints the chief executive officer commonly known as CEO of the corporation and sets out the overall strategic direction. Typical duties of board of directors include governing the organization by establishing broad policies and setting out strategic objectives, selecting, appointing, supporting and reviewing the performance of the chief executive officer, ensuring that availability of adequate financial resources, approving annual budgets and accounting to the stakeholders for the organization's performance, setting the salaries, compensation and the benefits of senior management also. Hence, it is clear that Board of directors take the main financial decisions. They may delegate the powers to the executive committee comprising of managing directors, directors and finance officer of the company.

Now let us discuss the role of chief executive officer. Chief executive officer is the main person responsible for managing a company who is sometimes also the company's president. or chairman of the board.

The CEO is the most senior corporate executive or administrative officer in charge of managing an organization. CEOs lead a range of organizations including public and private corporations, non-profit organizations and even some government organizations. The CEO of a corporation or company typically reports to the board of directors and is responsible for maximizing the value of the entity which may include maximizing the share price, market share and the revenues generated. In the non-profit and government sector, CEOs typically aim at achieving outcomes related to the organization's long-term and short-term objectives such as profit maximization, wealth maximization and so on.

Vice presidents of finance and chief financial officers perform very similar duties. Their titles can be interchangeable depending upon the size of a given company. When both positions exist in a company, CFOs are generally considered to be more strategically oriented and forward thinking whereas, forward thinking is a very important part of our life.

Finance-wise, presidents ensure that their respective companies' finances are managed appropriately and effectively. However, both positions report to and work very closely with the president and CEO of a given company. Generally speaking, they both make sure that their companies' finances are in check and And they run projections. As to what the business might do in future, depending on the size of their company, they may appoint a team of accountants for continual monitoring of company's financial figures.

The financial figures are usually shared to the current and prospective investors, board of advisors and other executives within the company. finance officers and Finance vice presidents also ensure that the work done within their company aligns with the financial future and strategies that have been planned out for the company. Vice president finance and chief finance officer perform tasks like to oversee all financial related matters where depth and scope is relative to the size of the company.

To create financial plans as defined by the board of directors. To direct financial strategies, analysis, forecasting and budget management. To direct all aspects of accounting operations such as receivables, payables, payroll and financial reporting.

Hence, finance vice president is generally the in charge of credit and collection accounting. investment and audit departments. He is responsible for preparing annual financial reports as well.

He reports directly to the president and board of directors. In the chart, you can see that treasurers and controllers report directly to the vice president finance. Now, let us understand the meaning of the controller and the treasurer. So, the controller is a person who directs the preparation of financial reports that summarize and forecast the organization's financial position such as income statements, balance sheets and so on.

He also analyzes future earnings or expenses. The controllers also are in the charge of preparing special reports required by government agencies that regulate businesses. Controllers are mainly responsible for accounting, audit and budget departments. Credit managers, inventory managers and capital budgeting managers directly report to the controller. Now, let us understand the meaning of credit managers, inventory manager and capital budgeting manager.

So, credit managers are specifically responsible for the firm's credit business. They set credit rating criteria, determine credit ceilings and monitor the collections of past due accounts. An inventory manager is in charge of inventory in a warehouse or similar facility.

Inventory managers lead a team of inventory or warehouse workers to receive and record new stock as it comes in and move out onto trucks or shelves as the requirement. Capital budgeting is a method of analyzing and comparing substantial future investments and expenditures to determine which ones are most worthwhile. Each project is ranked by its potential future return. So the company management can choose which one to invest in first.

So capital budgeting manager is responsible for analyzing return on investments. Treasurers and finance officers direct their organization's budget to meet its financial goals. They are mainly responsible for the investment of funds. They carry out strategies to raise the capital by issuing stocks or bonds to support the expansion of the firm. They also develop financial plans for mergers.

Mergers means two companies joining together and acquisition means one company buying another. So, they develop financial plans for mergers and acquisitions. Cost accountant, financial accountant and tax accountant directly report to the controller.

Cost accountants provide data about the cost of producing the company's products or services. This information enables managers to project the profitability of future projects. products or services.

This data provides the answers to the cost of standard units of production, labor, cost of material and the cost of equipments used in the production. Without this information, company managers do not have the data they need to correctly project the risk and rewards of a given capital expansion program. The financial accountant is a person who prepares profit and loss account, balance sheet, cash flow and fund flow statements of the company so that stakeholders can evaluate company's performance.

Tax accountants ensure that companies and individuals comply with tax laws by filing income tax returns. accounts. Some tax accountants also offer tax planning advice to their clients.

Generally, the organization of finance is centralized unlike other business functions. The reason for centralized finance function is that financial decisions are more crucial which decide the failure or the survival of the organization. The solvency of an organization.

is greatly affected by the financial decision. A wrong financial decision may result into financial crisis that may affect liquidity of the firm. The most important point to be noted is that finance function is never outsourced.

Thus, finance is considered as the function of utmost important due to the reasons. financial decisions are the most crucial ones on which the survival or the failure of organization depends. And the next one is financial decisions affect the solvency position of the organization and a wrong decision in this area may land the organization into crisis.

Now let us understand the duties and responsibilities of finance executives. All the major financial policy decisions are taken by the executive committee. While routine financial decisions are delegated to the lower level officer in the company.

On the basis of the scope of the finance, the various duties and responsibilities which a finance executive has to fulfill can be discussed like recurring duties and non-recurring duties. So, recurring financial duties encompass all such financial activities that are carried out regularly for the efficient conduct of a firm. Recurring duties include deciding the financial needs, raising the funds required, allocation of the funds, allocation of the income, control of funds, evaluation of performance in terms of financial statements, corporate taxation and so on. Whereas, non-recurring duties refer to the to those financial activities that a finance manager has to perform very infrequently. It includes preparation of financial plan at the time of promotion of the enterprise, financial readjustments in times of liquidity crisis, valuation of the company at the time of merger or reorganization of the company and similar activities are of episodic character.

It is very necessary for us to understand different fields of finance. There are various fields in which the finance function may operate. In each field, financial executive deals with the management of money and claims against money.

The various fields can be stated like business finance, corporate finance, public finance and private finance. Now, we will talk about business finance. Business finance is a very broad term. It covers all the activities carried on with the intention of earning profits.

Thus, business finance covers the study of finance function in the areas of business which includes trade as well as industry. Next is corporate finance. Corporate finance is a part of business finance. It deals with the financial operations carried on by corporate enterprise from the stage of its inception to the stage of its growth and expansion. International finance is the another field.

So, international finance is the study of flow of funds beyond national boundaries and developing the methods to handle these funds more effectively. This may become crucial. as it involves exchange of currencies.

At the same time, the governments of nations may have close watch and control on these transactions involving foreign currencies. Public finance deals with the financial matters of the government. It becomes crucial as the government deals with large sum of money which can be raised through collection of taxes. The government do not operate with the objective of earning profits, but to accomplish social and economic objectives. Private finance deals with the financial matters of non-government organizations.

So, to conclude, it may be stated that all the functions or activities of the business are ultimately related to finance. The success of the entire organization depends on how best all these functions are coordinated. Thank you.

Transcript for:Financial Management Overview

Transcript for:
Financial Management Overview