FINANCIAL MANAGEMENT - PURPOSES AND FUNCTIONS

Abstract

Financial management plays a dynamic role in the development of a modern company. Intense competition between corporations, technological change, volatile interest rates, global economic uncertainty, fluctuating trends, tax laws changes and ethical concerns about determining financial matters are a daily occurrence that needs to be addressed. A financial manager has the ability to adapt to change, the ability to find sources of funding, invest in property and wise management that affect the success of the company and ultimately the overall economy. Major changes and uncertainty in the environment have emphasized the importance of financial management, whose primary role is to make and implement business decisions.
The financial management takes care of the acquisition, financing and management of the property having in mind the basic goal of the operation-making a profit. The main goal of financial management is: “maximizing the wealth of the shareholders” – increasing the value of their shares. Financial management also includes a decision-making function, which consists of three important decisions: investment decision, financing decision and dividend decision.
From the correct connection of these decisions, the rational use and proper allocation of funds in the company will depend on its survival and growth. Therefore, the financial manager in conditions of uncertain and changeable decision must be a coordinator and controller in business- making situations, and in full cooperation with managers from other sectors in the company. When making financial decisions, the financial manager should always take into account the risk-return ratio to achieve the desired goals of the company. The wealth of the shareholders is shown through the market price of the ordinary shares of the company, which is a result of the decision made for investment, financing and the decision for distribution of dividends. The success of the business decision is directly reflected in the market price of the share. The increase of the market value of the company’s shares can also be influenced by good corporate governance. Financial management in such cases has a role to play in advancing corporate management and corporate finance in the company.
Capital investment decision are a long-term choice around which projects receive investment, whether they will have to finance that decision with funds or debt, and whether a dividend will have to be paid to a shareholders. On the other hand, short-term decisions can fit into “capital management”. Capital management handles the short-term balance of current assets and current debts. Particular attention should be paid to the management of cash, inventory and short-term loans and borrowings (such as advanced credit opportunities for customers).