Types of Financial Management
Financial management is required by an organization for a variety of operations. Approving loans or credit lines, hiring personnel, developing client relationships, establishing a company’s credit rating, adjusting budgets, monitoring cash influx and outflow activities, risk management, and other tasks are examples.
Building and increasing an organization’s value is one of the most important sorts of financial management decisions. Here, we’ll look at the three most typical sorts of financial management decisions, as well as examples of how they’re used to achieve a shared aim.
What are the Three Financial Management Types?
Any organization’s financial report is largely determined by how various types of financial management decisions are made. It is properly said that a well-managed business will always have strong balance sheets and excellent books of accounts, which you may want to review several times. Let’s look at the three types of financial management decisions that every organization should take seriously, and how each action necessitates optimal time.
Decision on Financing
Financing decisions are the most basic sort of financial management. Financial decisions made in connection with a fund-raising campaign. Part of the procedure include identifying multiple financing sources as well as the quantity of money to be raised from long- and short-term sources.
Financial management examines the cost of capital and financial risks associated with various options as part of the financing decision, and then selects the percentage of money to be collected from shareholders’ funds and borrowed funds. A corporation can raise long-term capital in one of two ways: with cash from shareholders or with borrowed capital.
Choosing an Investment
Investment decisions are the second most common sort of financial management. Investment decisions are financial decisions made by management to allocate funds to various assets in order to maximize prospective returns for investors. It comprises examining a number of potential investment opportunities and selecting the best ones. Long-term and short-term investment decisions are both possible.
Decision on Dividends
Dividend decisions are financial decisions made in connection to a company’s share of earnings being distributed to its shareholders in the form of dividend payments. Dividend decisions should be made with the goal of maximizing shareholder value in mind whenever possible. As the name implies, the dividend decision comprises deciding how much profit (after taxes) to distribute to shareholders as dividends and how much profit to keep in the company for future growth. The three types of financial management are as follows.
Management of financial planning, analysis, and control
Financial planning is the process of determining how a company will achieve its main goals and objectives. A Financial Plan is usually created after the organization’s vision and goal have been established. The Financial Plan outlines all of the activities and exercises required to achieve these objectives.
Financial analysis is a method of examining firms, budgets, projects, and other financial problems in order to determine their suitability, execution, and performance. Financial analysis is frequently used to determine whether a company is stable, liquid, or productive enough to allow investments. Financial controls are actualized procedures, structures, and ways for managing finances.
The financial controls framework provides management with a tool to monitor the achievement of operational goals and objectives. These types of financial management decisions are frequently made by teams who are not in charge of the bookkeeping office, the budget division, or auditing.
Risk Management and Insurance
Insurance and risk management share the same goal of reducing an organization’s risk; however, different tactics are used to achieve these goals. The risk management team is in charge of reducing the organization’s risk factors that pose a threat to its operations. For instance, consider floods, fires, or other natural disasters.
These sorts of financial management are primarily responsible for developing procedures that allow the firm to remain profitable despite natural disasters or pricing fluctuations owing to currency differences. Simultaneously, selecting the finest insurance plan for an organisation, with the appropriate benefits and protection level, is critical in reducing the firm’s risk of risk or lawsuits.
Conclusion
Every company is different, has its own set of ideals, and has its own way of conducting business. But there is one factor that all companies have in common: finance, and the success of any firm is dependent on finance. So far, we’ve looked at the numerous types of financial management decisions that a firm must make in order to fulfil its objectives.
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