A Discussion On Financial Management

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Financial management is a discipline that deals with monetary decisions plus the tools and analysis done to arrive at such decisions. Scarce resources are generated and allocated to the most efficient user within a business. The functions of a finance manager can be classified into either managerial or routine functions.

Available funds must be allocated within the organization to projects that will yield the highest return. The required rate of return of competing projects is determined by finance managers using capital budgeting techniques. It is the minimum rate of return that a project must generate if it has to receive funds. Before a decision to finance an opportunity is made, capital budgeting techniques are used to value projects.

The value of firms is maximized by investing in projects that yield a positive net present value. An appropriate discounting rate that considers many risks is used by finance managers to value competing projects. Besides making choices on where to invest and how to raise funds, finance managers make dividend decisions. Dividend decisions determine how much to pay shareholders and funds to be retained in a company.

Capital budgeting is a process of allocating limited resources among competing opportunities. The flexibility and uncertainty of a project should be keenly evaluated so that sound decisions are made. Working capital needs are periodically evaluated by managers to ensure that an organization is sufficiently meeting its short term requirements.

Earnings are usually first distributed to other providers of funds such as preference shareholders and debt lenders . Dividend policies of different companies influence their total value . Managers must therefore make sound choices on the most optimum dividend payout ratio. This usually maximizes the value of a firm. A company must meet its current obligations which cannot be postponed.

Managerial finance is concerned with assessing how funds are committed to activities. The performance of an entity can be measured through preparing ratios. Ratios of preceding and current year are compared to assess how an entity is performing. The performance of a firm can be compared with that of an industry.

Financial management also evaluate the risks that arise during normal operations. Inflation and increase in market risks requires preparation and implementation of strategies that will enable a company maintain its profits. Managerial functions are effectively executed when routine tasks are properly performed. Junior staff members in the finance department perform routine functions. The activities delegated to junior staff must be supervised by a finance manager.

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MLA Style Citation:
Lenderman, Darren "A Discussion On Financial Management." A Discussion On Financial Management. 9 Feb. 2012. uberarticles.com. 8 Apr 2012 <http://uberarticles.com/finance/a-discussion-on-financial-management/>.

APA Style Citation:
Lenderman, D (2012, February 9). A Discussion On Financial Management. Retrieved April 8, 2012, from http://uberarticles.com/finance/a-discussion-on-financial-management/

Chicago Style Citation:
Lenderman, Darren "A Discussion On Financial Management" uberarticles.com. http://uberarticles.com/finance/a-discussion-on-financial-management/

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