Corporation finance or broadly speaking business finance can be defined as the process of raising, providing and administering of all money/funds to be used in a corporate (business enterprise).
Corporate finance is often concerned with maximizing shareholder value through long- and short-term financial planning and the implementation of various strategies. Corporate finance activities range from capital investment to tax considerations.
Financial Management is all about planning, organizing, directing, and controlling the economic pursuits such as acquisition and utilization of capital of the firm. To put it in other words, it is applying general management standards to the financial resources of the firm.
For any business, it is important that the finance it procures is invested in a manner that the returns from the investment are higher than the cost of finance.
Importance of Financial Management:-
Solid financial management provides the foundation for three pillars of sound fiscal governance:
Strategizing, or identifying what needs to happen financially for the company to achieve its short- and long-term goals. Leaders need insights into current performance for scenario planning, for example.
Decision-making, or helping business leaders decide the best way to execute on plans by providing up-to-date financial reports and data on relevant KPIs.
Controlling, or ensuring each department is contributing to the vision and operating within budget and in alignment with strategy.
With effective financial management, all employees know where the company is headed, and they have visibility into progress.
Objectives of Financial Management:-
Building on those pillars, financial managers help their companies in a variety of ways, including but not limited to:
Maximizing profits by providing insights on, for example, rising costs of raw materials that might trigger an increase in the cost of goods sold.
Tracking liquidity and cash flow to ensure the company has enough money on hand to meet its obligations.
Ensuring compliance with state, federal and industry-specific regulations.
Developing financial scenarios based on the business’ current state and forecasts that assume a wide range of outcomes based on possible market conditions.
Dealing effectively with investors and the boards of directors.
Ultimately, it’s about applying effective management principles to the company’s financial structure.
Scope of Financial Management:-
1. Investment decision:
Financial management is involved in managing all investment decisions of an organization. Investment decisions involve risk evaluation, measuring the cost of capital, and estimating benefits expected out of a particular project. Managers are responsible for deciding how available funds should be invested in fixed or current assets to earn optimum returns.
2. Working Capital decision:
Taking working capital decisions properly is another important scope of financial management. These decisions are concerned with investment in current assets or current liabilities. Working capital decisions revolve around working capital and short-term financing. Current assets include cash, inventories, receivables, short-term securities, etc. whereas current liabilities include creditors, bank overdraft, bills payable.
3. Financing decision:
Financing decisions involves deciding how the required funds should be raised from available long term or short term sources. A financial manager is required to form a proper finance mix or optimum capital structure of the company to raise its value. They are required to maintain a proper balance between equity and debt to provide maximum return to shareholders.
4. Dividend decision:
Financial management involves taking all dividend decisions of the company. These decisions involve developing a proper dividend policy regarding the distribution or retaining of company profits. The finance manager should decide an optimum dividend payout ratio out of available profit. He should consider all expansion and growth opportunities available to the organization and should avail them by retaining a proper amount of profit.
5. Ensures liquidity:
Maintaining proper liquidity in an organization is another important role played by financial management. The finance manager ensures that there is a regular supply of funds in an organization. He monitors all cash-inflows and cash-outflows and avoids any underflow or overflow like situations. Ensuring the optimum level of liquidity in an organization is one of the important scopes of financial management.
6. Profit management:
Financial management aims at increasing the profit of the company. It works towards reducing the cost of various activities through proper monitoring and setting up proper price policy. The finance manager measures the cost of capital and chooses cheap sources of capital by properly analyzing different sources available.