In most organizations, the top brass is the one who handles the money. Examples include the Chief Financial Officer (CFO) and the Controller. These heads of state must safeguard the availability of cash to satisfy pressing needs and plan for the future while keeping losses to a minimum. Financial planning, forecasting, and budgeting, as well as legal and regulatory compliance, are all the purview of the CFO and Controller. We will go over the goals of financial management in detail in this article.
Effective financial management is crucial for any company or organization since it guarantees efficient use of resources and reduces risks. Good financial management also helps a business reach its goals in a timely and effective manner. A company’s success and continued existence may depend on the quality of its financial management. Effective financial management improves a company’s chances of success by making the most of its available resources.
Goals of Financial Management
MBA Finance, often known as “financial administration,” allows people to acquire and wisely employ money, making it essential to the success of any enterprise, economic or otherwise. Historically, the scope of accounting practices has extended to cover financial management. Now, it includes a wider range of businesses and industries than ever before. The banking industry has received increasing attention as the globe has gotten more industrialized and banking administration has become a core component of business administration. Corporate finance, company finance, financial economics, financial mathematics, and financial engineering are all types of management. To learn more, think about reading these goals of financial management.
Maximizing Earnings per Share
Earnings per share (EPS) maximization entails maximizing after-tax profits in proportion to the number of outstanding equity shares. In terms of wants and needs, this goal is similar to maximising earnings. The profit model and the standard of comparison are both quite specific. If the impact of the reward policy on the value is disregarded, maximizing EPS may have a negative impact on the value.
Cash Flow Optimization
A company’s liquidity is a measure of its health when meeting short-term commitments. Factors like liquidity ratio, current asset mix, quality of noncash assets, and connections with short-term debtors impact the ability to pay obligations. Maintaining a healthy and balanced current ratio, converting current assets to liquid assets easily, understanding creditors, and assisting bankers help maintain high liquidity levels. Acquiring these requires time, money, and potential risk. While it’s a good goal, excessive liquidity can harm long-term health. Every company needs revenue to cover daily expenses and avoid losses. Cash reserves allow for bulk purchases, quick lending, and payment of short-term obligations with discounts. However, excess liquidity can render cash resources unproductive. Generating income and having surplus cash are separate goals that require attention.
Financial Planning Objectives
The fundamental goals of personal finance management are covered here. Because everyone has different priorities in life, everyone’s approach to money management will be different as well. However, there are a few basic goals in terms of personal finance that everyone should work for. The primary goals of financial management include maximizing shareholder wealth and value.
Typical Monthly Costs
The story comes to an end here. Simply list all of the bills that fall due within that calendar month. Not only should groceries and rent be included, but also medical bills, gas money, weekend getaways, child care, etc. Keep in mind that bills (miscellaneous expenditures) are typically more than expected. Increase your monthly outlay by that amount. This supplemental income will be put toward once every two or three months costs, such car maintenance or a surprise gift for a family member.
Intermittent Costs
Buying a car, a laptop, making some repairs or upgrades to your house, going on a trip, or buying some new electronics all fall into this category. Most people save a small amount each month (or keep some cash on hand) to cover these costs, see those funds grow a bit, and then make a purchase.
Optimizing Returns
The maximization of earnings is a primary goal of financial management. A company’s profit is the sum that exceeds its expenditures. To maximize profits, you should maximize income while lowering costs. It might also imply maximizing profits while keeping costs to a minimum. The use of pricing and scope enables the maximization of profits. Increasing prices may be the most profitable option if doing so does not cause a significant drop in demand. The best way to maximize profits is to increase sales by taking advantage of customers’ willingness to pay a higher price. How numbers affect costs, how price-conscious people are, and the health of the input market all play a role in determining how much money can be saved. You need more than one thing to maximize your profits.
Budgetary Adaptability
Every month, the budget will shift, either rising or falling. Therefore, it is essential to conduct a study on a monthly basis. A family should add Rs 2,000/- to the following month’s budget if, despite their best efforts, they end up spending Rs 2,000/- more than they had planned.
Revenue Maximization Goal
Achieving revenue maximization goals requires making prudent economic choices that boost earnings and cut wasteful spending. The selection of acceptable assets is the most important duty for financial administrators and leaders. Projects should be prioritized based on their feasibility and profitability, as well as their alignment with the organization’s financial management goals. Making as much money as possible is one of a company’s top priorities, but this goal is under fire in today’s corporate environment. This is mainly due to people not respecting other people’s time, not being clear, not understanding the importance of providing a high-quality product, etc.
Future Retirement Plans
These are the most important goals to aim towards while managing your retirement money. Relying on your kids to pay your bills is a bad idea. The general public strongly opposes it. Therefore, retirement savings strategies are given top emphasis. These common costs represent monetary goals. The aforementioned costs are, in actuality, wish lists or minimum attainable objectives. Setting ambitious goals is recommended in most situations.
Distributing Money
The next step is to finish the documents required for the financial evaluation. You need to design a strategy that will allow you to accomplish all of your goals with the money you already have and the money you expect to earn in the future. The essence of budgeting is planning how to spend, save, and repay future income. Remember the following as you work toward your goals of better money management and asset allocation. One of the key goals of financial management is to ensure the long-term financial sustainability of the organization.
Boosting Shareholder Profits
In order to benefit shareholders as much as possible, management should prioritize growth. Market capitalization plus the value of the company’s debt on the open market is the same thing. Creditors can legally sue a company if they feel wronged. Stock market value rises when a company is made as valuable as possible. This means that buyers will get a bigger return on their investment when the stock price rises. This goal is favored above the more common one of maximising financial gain. The advantages of a high-quality product, clearly defined goals, a lack of competing stakeholder interests, etc., all play a role.
Future Reserved Funds
The likes of homeownership, education, marriage, and having children are among the common aspirations shared by all humans. You will need to keep saving up because some of these items are quite costly. Insurance, real estate investments, mutual funds, bonds, equities, and fixed deposits are the best options for long-term financial security and growth.
Irregular Revenue Handling
There is a good chance of money running out even if income stays the same. It’s also very likely that your outgoings will exceed your inflows. As a result, families with inconsistent incomes are more likely to face these two risks. This is the case if one’s earnings come from a company or job rather than a pay. It is also crucial to put money aside for months in which expenses exceed income. The goals of financial management encompass maintaining a healthy cash flow to meet financial obligations.
Unplanned Expenses
Potentially costly events in the future, such as medical care, theft, death, and natural disasters. The importance of having a Plan “A” is analogous to the importance of having insurance. If Plan “A” doesn’t work, but… The “B” plan needs to be ready just in case. As a result, it is usually best to save money in a variety of ways. People still put money away in a wide variety of places, like houses, mutual funds, insurance policies, and stocks.
FAQ
What’s the Core Purpose of Financial Management?
The job of a financial manager is to maximize shareholder value. The company accomplishes this by increasing the value of its assets. This is a reasonable aim, since owners run the show. Their financial resources are under peril.
How does the CFO Support the Company’s Mission?
Financial managers, in general, are responsible for an organization’s financial well-being and contribute to its continued existence. Essential tasks are under their purview, including as keeping an eye on the money coming in and going out, figuring out how profitable the business is, reining in expenses, and gathering reliable financial data.
What Exactly is the Point of Financial Management?
The primary goal of managing one’s finances may differ from person to person or company to company. However, making as much money as possible while taking as little risk as possible is priority number one. In order to secure the company’s long-term success, it must engage in strategic planning and base its decisions on study of market data.
Summary
Because they are continually on the lookout for more, people have a hard time setting reasonable financial objectives for themselves. In that split second, people regularly commit to goals that are impossible to achieve. Assume, for the sake of argument, that someone earns just $10,000 per month but nonetheless wants to acquire $100 billion in fortune; this would be an example of a financial management goal. When a person puts too much pressure on themselves by setting an impossible goal, they start to feel overwhelmed. When performing various business tasks, keep in mind that goals of financial management plays an important role in the overall process. To gain a comprehensive understanding of advantages of financial management, read beyond the surface level.
