financial management essay

Essay on Financial Management

Students are often asked to write an essay on Financial Management in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Financial Management

What is financial management.

Financial management is taking care of money. It’s like being smart with your allowance. You plan how to spend and save. Companies do this too. They decide where to use their money to grow and make more.

Why It’s Important

Good financial management helps you not run out of money. It’s like making sure you have enough lunch money for the whole week. For businesses, it means they can pay workers and buy what they need.

Making a Budget

A budget is a plan for your money. You write down what you earn and what you spend. It’s like planning your snacks so you don’t eat them all at once.

Saving and Investing

Saving money means keeping it for later. Investing is using your money to try to make more money, like buying a lemonade stand to earn more.

Being Careful with Debt

Debt is borrowing money. It can help you when you need it but remember to pay it back. It’s like borrowing a toy and making sure to return it.

Also check:

• Advantages and Disadvantages of Financial Management

250 Words Essay on Financial Management

Financial management is about how to handle money in a way that is smart and helps achieve goals. It’s like planning a budget for a family or figuring out how to save up for a big purchase. In businesses, it’s about making sure they have enough money to run smoothly and grow.

Creating a Budget

One part of financial management is making a budget. A budget is a plan that shows how much money you expect to get and how you plan to spend it. It’s like when you decide to save part of your allowance for a new bike. Companies do the same by setting aside money for new projects or to pay workers.

Saving money is another key point. It means keeping some money aside for later rather than spending it all. Investing is a step further, where you use your savings to make more money, like buying shares in a company or saving in a bank account that earns interest.

Making Smart Choices

Financial management also involves making decisions about what to buy and when. It’s important to think about if something is really worth the money or if there might be a better way to use it. This can help avoid wasting money and make sure there’s enough for important things.

Good financial management helps avoid money troubles and can even lead to having more money in the future. It’s a skill that is useful for everyone, from kids saving their allowance to adults running a big company. Learning about it early can make life a lot easier and more successful.

500 Words Essay on Financial Management

Financial management is like being the boss of your money. Imagine you have a piggy bank; taking care of it, deciding when to put money in, and when to take some out is a bit like financial management. But for grown-ups, it’s more complex because they deal with things like budgets, savings, investments, and loans. It’s all about making sure that money is used wisely and that there’s enough for the things we need, both now and in the future.

The Importance of Budgeting

A budget is like a shopping list for your money. It helps you keep track of how much money you have, what you need to spend it on, like food and rent, and how much you can save for fun things, like toys or vacations. By making a budget, you can make sure you don’t spend too much and end up with no money when you need it. It’s like planning your spending so that you can always buy what you need and sometimes what you want.

Saving money means putting it away for later, like in a savings account. It’s important because it can help you buy big things in the future, like a car or a house. Investing is a bit like planting a seed and watching it grow. You use your money to buy things that could make more money over time, like stocks or bonds. Both saving and investing are ways to make sure you have enough money for the future.

Financial management also means making smart choices with your money. This means thinking carefully before you buy something. Ask yourself, do you really need it? Can you afford it? Sometimes, it’s better to wait and save more money before buying something big or expensive. This helps you avoid debts, which is money you owe to others.

Understanding Loans and Debts

Loans are like borrowing money from a friend, but you have to pay it back with a little extra, called interest. Debts are the total amount of money you owe others. Managing loans and debts is important because if you borrow too much, it can be hard to pay back. It’s like taking too much food on your plate and not being able to eat it all. You need to be careful and borrow only what you can pay back.

Planning for Surprises

Sometimes, things happen that we don’t expect, like a bike breaking down or getting sick. That’s why part of financial management is putting some money aside for emergencies. This money can help pay for these surprises so that they don’t cause big problems with your finances.

Financial management is all about taking good care of your money. It helps you make smart choices, save for the future, and be ready for unexpected events. Just like you take care of your toys and belongings, taking care of your money is important too. It means you’ll always have enough for the things you need and some of the things you want. Remember, being the boss of your money is a big responsibility, but it can also be fun when you do it right!

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Essay On Importance Of Financial Management

Financial management “is the operational and financing activity of a business that is responsible for obtaining and utilizing the funds necessary for effective operations. Thus, Financial Management is concerned with the effective funds management in the business process. Finance is interrelated functions which deals with marketing function, production function, Human Recourse function and Research & development activities of the business concern. Financial Management is concerned with the financing, acquisition and management of assets with some overall goal in minds. There are three major areas in Financial Management decision making. 1- Investment decision 2- Financing decision, 3- Assets Management decision. 1- Investment Decision It is one of the most important decisions. Finance Management is …show more content…

It must be full fill the business concern’s requirement. Every organization must maintain adequate amount of finance for their smooth running of the business organizations and to achieve the business goals. Importance of Finance can’t be neglect in an organization. Some are the importance of financial management is as follows: • Financial Planning Financial planning is an essential part of the business organization. Financial management helps to determine the financial requirements of the organization and leads to take financial planning to the organization. • Accomplishment of funds Financial management involves the accomplishment of required fund to the business organization. Accomplishing needed funds play a major part of the financial management in an organization which involve possible source of finance at minimum cost. • Proper Use of Funds Financial management systems help to proper use and allocation of funds which leads to improve the operational activity of the business organization. If the funds use properly, so it helps to reduce the cost of capital and maximizing the value of the firm. • Financial

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Financial Management Introduction ============ Every organization, irrespective of its size or ownership pattern, has to manage its finances. The overall objectives of an organization cannot be achieved in the absence of financial management. Many organizations fail in their objectives because of financial mismanagement and this failure rate is quite high among the small business enterprises. Hence, financial management is vital for all types of organizations, profit making as well as non-profit making. In case of non-profit making organizations also the effectiveness and performance depends on their financial resources management. Financial Management ==================== …show more content…

3. Managerial Accounting deals with procuring of data for the organisation's management i.e. to serve the internal users with necessary accounting information to carry out the management tasks of planning, organising, actualising and controlling. " Management Accounting is the presentation of accounting Information in such a way as to assist management in creation of policy and in the day to day operations of an undertaking". 4. Financial Management deals with the process adopted by an organisation for taking financial decisions through analysing and interpretation of financial data for meeting the organisations objectives. Hence, the tasks involved in Financial Management include: Ø Analysing financial needs Ø Forecasting financial needs Ø Managing working capital Ø Planning capital structures Ø Organising financial operations Ø Monitoring and controlling finances etc. In fact raising funds and allocating funds for business are the two prime financial management tasks. Financial Planning Financial planning is an appraisal of those financial aspects that may or are likely too occur in future but need immediate decision making. It involves setting financial objectives in terms of profits, sales or acquistion of assets along with financial foorecasting for the organisation. This includes estimation in the areas of: Ø

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Being Financial Manager comes with laws and regulations for them to follow. These Laws and regulations for this job are going to be stated throughout this essay with when they were published and what they mean. The first act is the Federal Managers Financial Integrity Act, which was published on 2004 and protects financial managers, requires that the person in charge of the agency provides a statement of assurance on if the agency has met their requirement. It also requires businesses to control management and systems that give assurance and the honesty of federal programs being protected. (General Services Administration, 2017)

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Essay on Financial Management

The growth of any business is a long-term practice that requires a lot of resources and expertise. I’ll try to persuade them by laying out my 5-year strategic growth plan, which will prioritize long-term rather than short-term results while reaffirming the company’s original ethical and environmental values. Plan of Action (Five Years) the mission, objectives, plans, tactics, and actions of a firm are all part of the strategic planning process. This plan will be a strategic road map that guides the business to achieve its long-term objectives, make more investments and make more revenue, factors that describe the growth of a business. The objective of our organization is to build a future where humans and the environment coexist.

Objective  – Through well-defined strategic planning, the SMART (Specific, Measurable, Achievable, Realistic, and Time-Bound) goal is to enhance profitability by at least 15% per year while safeguarding the environment over five years.

As a result of the challenges posed by climate change and other external variables that may have an impact on the world we live in, a rising number of people or potential clients are drawn to the idea of businesses taking greater social and environmental responsibility. Several countries throughout the world are gradually supporting this by passing laws that promote social and environmental awareness and punish noncompliance. This will help me make a stronger case when presenting the 5-year strategy because it will allow the company to be in business for a long period. I must remain steadfast in my opinion that the company’s principles must come first, and profits will follow because the longer the company is in business, the more possibilities will present themselves.

A public debt offering, such as the issuance of bonds, is an alternative to a public offering. In exchange, Dottie’s Grocery would be required to pay interest to investors on a defined schedule and rate through the coupon rate. It’s worth noting that IPOs are more expensive than corporate bonds since stock investments are riskier than bond investments because capital gains are not guaranteed, dividends are discretionary, and stockholders have a claim to the company’s assets in the event of default (Cole and Sokolyk, 2018). I would have a higher Weighted Average Cost of Capital if Dottie’s Grocery chose this method. Choosing corporate bonds, on the other hand, would provide Dottie’s Grocery with tax benefits as well as the independence to manage the business.

Although tactics based on social and environmental values will inevitably entail expenses, I will describe them in such a way that they can be considered an investment. I’ll underline to them the enormous benefits of the company’s ethical and environmental ideals, such as a favorable reputation and solid corporate alliances, as well as community relations, which have helped it get to this point. If the shareholders aren’t happy, I’ll have to find another investor that believes in the company’s objective and vision. The guarded financial approach would lead to increased transparency in financial reporting if Dottie’s Grocery was listed. The corporation would be expected to submit quarterly and annual reports, for example. Market risk, legal actions, and payment defaults and controls would be included in quarterly reports, while equity holdings, subsidiaries, and changes with accountants, incorporations, and stock plans would be included in annual reports.

Furthermore, the lack of financial capacity that prohibits the company from competing in the industry is the reason I permitted shareholders and/or investors into the company. Operating with business partners who have distinct objectives, missions, and visions, on the other hand, is not sustainable in the long run since it will result in poor planning, communication, and cultural confrontations as a result of the goals discrepancies, sabotaging growth possibilities. Additional debt for Dottie’s Grocery could harm the company’s financial position; for example, greater interest payment duties could lead to a risk of default. This might happen when the company’s sales drop, leaving it with insufficient cash to repay bondholders, (Fairfax, 2019).

Cole, R. A., & Sokolyk, T. (2018). Debt financing, survival, and growth of start-up firms.  Journal of Corporate Finance ,  50 , 609-625.

Fairfax, L. M. (2019). From apathy to activism: The emergence, impact, and future of shareholder activism as the new corporate governance norm.  BUL Rev. ,  99 , 1301.

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Financial Management Essay Examples for Free

Financial management focuses on handling a company’s finances to ensure the business is successful and completely legal. Put simply, it is all about efficient decision-making regarding an organization’s assets.

There are many options for financial management essays, for example you could:

• Examine the latest economic policies in the industry.
• Conduct a more technical analysis of active money management methods.
• Consider the importance of corporate dividend policies for companies.
• Investigate financial bubbles and how they are created.
• Reflect on the recurring manner of financial bubbles.

Please find below our comprehensive list of well-written financial management essay examples. These papers created by high-achieving students will get you inspired.

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Essay on Financial Management

After reading this essay you will learn about Financial Management:- 1. Nature of Financial Management 2. Approaches of Financial Management 3. Objectives 4. Goals 5. Responsibilities.

• Essay on the Responsibilities of Financial Management in the Firm

Essay # 1. Nature of Financial Management:

The nature of financial management refers to its functions, scope and objectives. Financial management itself is concerned with the planning and controlling of the financial resources of the firm. As an academic discipline, it has undergone fundamen­tal changes in relation to its scope, functions and objectives.

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In the past, when it was simply a branch of economics, it was treated as the raising of funds. But, at present, it is used in a broader sense which includes the efficient use of resources in addition to procurement of funds.

At the same time, the academic thinking relating to the objective of financial management has also undergone changes over the years. Howev­er, the object of the present study is to describe the functions and objectives of financial management in the academic literature in order to serve as a background to its various aspects which are very important.

Essay # 2. Approaches of Financial Management :

The scope and functions of financial management are divided into two following broad categories, viz.:

(i) Old or Traditional Approach; and

(ii) New or Modern Approach.

(i) Old/Traditional Approach :

Financial management, at the initial stage of its evolution, was a separate branch of academic study in the academic literature and the term, ‘corporation finance’ was used. At present, this term is being replaced in the academic world by ‘financial management’ which deals with the financing of corporate enterprises.

According to this approach, the scope of financial management and the role of financial manager are considered to be confined to the procurement of funds in a broader sense.

As a result, the entire financing technique was treated as encompassing three interrelated aspects of raising and administering resources from outside:

(i) The organisation of capital market in the form of financial institution;

(ii) Funds are raised from the capital markets through financial instruments along with the practices and procedural aspects of capital markets;

(iii) The legal and accounting relationships between the sources of fund and a firm itself.

Therefore, the area of corporation finance was limited to the covering of complex of capital market institutions, practices and instruments through which funds are obtained. Besides, since the problem of raising funds is more intensely felt in case of an episodic event, detailed description of the events like mergers, consolidations, re-organisation, recapitalisation etc. are contained in the field of academic story.

The traditional approach to financial management did not allow the financial manager to take any decision regarding the allocation of the firm’s funds although he was required to raise the needed funds from various sources. The traditional approach evolved in the 1930s and 1940s which dominated the academic thinking during 1940s and early 1950s.

But, subsequently, the same was discarded due to the following snags:

(i) Since the basic conceptual and analytical framework of the definitions and scope of the finance are limited and

(ii) The treatment of various topics and their emphasis is not enough.

Besides, the traditional approach was criticised for the following reasons:

(a) The traditional approach emphasises on raising and administering funds. The subject of finance is treated from the investors’ point of view. No importance was given to the point of view of the financial decision-maker (i.e., who had to make internal financial decisions). In short, the traditional view is the outsider-looking-in approach.

(b) The traditional approach is considered as the episodic financing function since it stresses overemphasis on topics of securities and its markets, incorporation, promo­tion, merger etc.

(c) Since the traditional approach stresses more emphasis on the long-term problem, it ignores the importance of working capital management.

(d) The traditional approach plays a significant role to the financing problems of non-corporate enterprises.

The shortcomings of the traditional approach were primarily due to the fundamental weaknesses other than the treatment and/or emphasis of different aspects. Its concep­tual and analytical limitations arose from the fact that it recognised only the problem of procuring the external funds and ignored the dimensions of allocations of capital which Solomon described as the central issues of financial management.

Of course, certain ‘traditional’ authors like Gerstenberg and Lincoln emphasised and initiated discussion on the topics of day-to-day financial operations including sales forecasting, budgeting, financial control, cost control, etc., along with the discussion on episodic financial events.

(ii) Modern Approach :

The traditional approach was criticised for its conceptual and analytical grounds by the proponents of modern or contemporary approach since the former neglects the problems of allocation of capital to different assets and the problems of optimum combination of finance, which, in other words, omitted the following two important matters, as pointed out by Dewing:

(i) The traditional approach does not recognise the relationships between financing- mix and the cost of capital and fails to solve the problems relating to optimum combination of finance; and

(ii) It also fails to deal with the problems relating to the valuation of the firm and the cost of capital.

The traditional approach evolved its utility during the 1940s and mid-1950s. But, during and after mid-1950s, an efficient and effective utilisation of a firm’s resources necessitated, as there were a number of economic and environmental factors, like the increasing pace of industrialization, technological inventions and innovations, intense competition, government intervention, population growth etc.

Fortunately, a number of management skills and decision-making techniques were devel­oped which facilitated implementing the optimum allocation of a firm’s resources. In other words, the approach and scope of financial management changed, i.e., the emphasis shifted from raising of funds to the efficient and effective use of funds or from episodic financing to the managerial financial problems.

The modern approach is an analytical way of viewing the financial problems of a firm. No doubt, financial management is an integral part of overall management.

In the words of Solomon, E.:

‘In this broader view the central issue of financial policy is the wise use of funds, and the central process involved in a rational matching of advantages of potential uses against the cost of alternative potential sources so as to achieve the broad financial goals which an enterprise sets for itself’.

Therefore, the primary finance function is to take proper decision about the expenditure and the demand for capital for those expenditures, i.e., the proper and efficient use of allocation of funds.

For this purpose, a financial manager should know the following:

(i) How large should an enterprise be, and how fast should it grow?

(ii) In what form should it hold its assets?

(iii) What should be the composition of its liabilities?

The above questions actually cover the major financial problems of a firm. In short, according to the modern approach, financial management deals with the solution of the above three major problems relating to the financial operations, viz., investment, financing and dividend decisions.

Therefore, financial management includes as functions of finance the three major decisions which are:

(i) The Investment decisions,

(ii) The Financing decisions and

(iii) The Dividend Policy decisions.

The new approach to financial management may be broadened to include profit-planning function also.

Essay # 3. Objectives of Financial Management :

From the discussion we have made so far, it becomes clear that a firm has to take the following three major decisions:

(i) Where to invest fund and what amount? i.e., the Investment decisions;

(ii) Where to raise funds and what amount? i.e., the Financing decisions;

(iii) How much to pay by way of dividends? i.e., the Dividend Policy decisions.

The investment and the financial policies depend 011 the above decisions. It should be remembered that a clear understanding of the objectives which are sought to be attained is necessary in order to make wise decisions. No doubt, the objective provides a framework for optimum financial decision-making. It is generally accepted that the financial objective of the firm is to maximise the owner’s economic welfare.

For this purpose, two well-established and widely-discussed criteria are presented:

(A) Profit Maximisation and

(B) Wealth Maximisation.

A. Profit Maximisation :

How a private firm should behave depends on profit maximisation as a decision criterion. Under this concept, actions that increase the firm’s profit are undertaken and those that decrease profit are avoided. Profit can be maximised either by increasing output for a given set of scarce input or by reducing the cost of production for a given output. That is, there must be efficient use of resources.

According to Modern Micro economic theory, profit maximi­sation is nothing but a criterion for economic efficiency as profits provide a yardstick by which economic performances can be judged under condition of perfect competition.

Besides, under perfect competition, where all prices accurately reflect true values and consumers are well informed, profit maximisation behaviour by firms leads to an efficient allocation of resources and maximum social welfare.

There is no doubt that financial management deals with the efficient use of economic resources, i.e., capital funds. Since the capital is a scarce item, it follows that the profit maximisation should serve as the primary need for the decision taken by the financial managers of private firms which, in practice, it follows.

But the same has to be transformed to provide the necessary principles and guidelines to the financial managers since the profit maximisation concept does not recognise the real-world problems that we feel when we want to take actual decisions about the efficient use of capital funds.

As a result, we cannot implement the fundamental idea which underlies the rationale of Adam Smith’s ‘invisible hands by which total economic welfare is maximised.

Profit maximisation is widely preferred, but, in fact, the concept has been questioned and criticised on the following grounds:

(a) Vague/Uncertainty :

Practically, profit maximisation, as an operational criterion, becomes unsuitable for the problems of uncertainty in relation to the investment and financing decisions since it considers only the size of benefits and gives no weight to the degree of uncertainty of the future benefits.

For example, two alternative courses of action might have the same expected outcome, but one might be far more risky than the other. The following illustration will make the principle clear: Let there be two investment opportunities, A and B, whose profit depend on the state of economy as illustrated in Table 1.1.

Table 1.1: Showing the uncertainty about expected profits :

In other words, the returns associated with the alternative B are more uncertain and/or risky since they fluctuate widely depending on the state of economy. Similarly, alternative A is better from the standpoint of uncertainty and risk. Here profit maximisation criterion fails to express it.

(b) Ambiguity :

Profit maximisation concerns ambiguity since the term ‘profit’ is vague and can vary widely depending on the principles of accounting applied.

(c) Timing :

Profit maximisation ignores timings. The money received to-day has a higher value than money received next-year, a profit seeking organisation must consider the timing of cash flows and profits. Which is more profitable to a firm, if it selects a 3-year project with a return of 20% or a 5-year project with a return of 17%?

No doubt the latter project may result in a greater total profit if the firm could not immediately re-invest its profits when the same was received from the 3-year project. The principle can be explained with the help of the following Table 1.2.

Table 1.2: Showing the timing of anticipated profit :

From the Table 1.2 shown above, it is clear that the total profits shown by the alternatives A and B are equal. Therefore, if profit-maximisation is decision-criterion, both of them should be given equal importance. But the important difference between them is that alternative-A provides a higher return in earlier years whereas alternative-B provides a higher return in the latter years, i.e., they are not strictly equal.

Because, we all know that the earlier the better as benefits received sooner are more valuable than benefits received later on the ground that the former can be reinvested ‘o earn a return. The same is due to the fact that there is a time value of money.

The profit maximisation criterion does not recognize; the distinction between the returns received in different periods of time and treats them at par which is not true in real-world as the profits (benefits) in earlier years should be valued more highly than the profits (benefits) in the subsequent years.

Therefore, it can be taken into consideration that the profit maximisation, as an operational criterion, is unsuitable and inappropriate of a firm from the standpoint of investment, financing and dividend policy.

It is vague and ambiguous and does not recognise the two basic facts, viz:

(a) Risk and

(b) Time value of money.

It can be stated that the appropriate operational-decision criterion should include the following:

(i) It must be precise and exact;

(ii) It should consider both quality and quantity dimension;

(iii) It should be based on the bigger the better principle; and

(iv) It should recognise the time value of money.

For the reasons shown above, value maximisation has replaced profit maximisation as an operational criterion for management decisions.

B. Wealth Maximisation :

The Value Maximisation or Net Present Worth Maximisation — which is universally accepted as an appropriate and operationally feasible criterion in order to choose among the alternative courses of action for financial management — is to maximise the value of the firm over a long run. It removes the limitations suffered by the earlier method — profit maximisation.

Under this method, the net present value or wealth of a course of action is maximised. The net present value is the difference between the gross present value of the benefits of that action and the amount of investment required to achieve those benefits. On the other hand, the gross present value of the same is determined by discounting or capitalizing its benefits at a rate which reflects their timing and uncertainty.

The operational features of wealth maximisation satisfy all the three requirements of a suitable operational objective of financial courses of action. Let us discuss one by one. The value of an asset is best viewed in terms of the benefits it can produce. The worth of a course of action can be judged in terms of the value of benefits it produces less the cost of undertaking it.

The benefits of an investment or financing decision can be measured in terms of the stream of future expected case flows generated by the decisions, rather than the accounting profit which is the basis for the measurement of benefits in the case of profit maximisation criterion.

The next feature of the wealth maximisation criterion is that it recognises both the quantity and quality dimensions of benefits along with the time value of money. The value of a stream of future cash flows must consider not only the expected value of the flows, but also their degree of uncertainty.

Other things being equal, less uncertain flows are valued more highly than more uncertain flows. Besides, money has time value.

That is, the sum of money received in future is less valuable than it is today. In other words, necessary adjustment must be made in the cash flow pattern in order to incorporate the risk and also to make an allowance for differences in the timing of benefits.

Therefore, the value of a stream of cash flows can be calculated by discounting its elements back to the present at a capitalisation rate that reflects both time and risk.

The capitalisation /discount rate is the rate which reflects both time and risk preferences of the owners of capital. Generally, capitalisation rate is expressed in decimal notation, i.e., if the rate of discount is taken as 16%, the same will be recorded as 0.16 (16/100) Capitalisation rate will be higher if the risk is greater and the period is longer.

It is quite clear that net present value maximisation is, no doubt, superior than the profit maximisation criterion as an operational objective. The value maximisation decision crite­rion involves a comparison of value to cost. An action that has a discounted value, reflecting both time and risk, that exceeds its cost can be said to create value.

Such actions should be undertaken. Conversely, actions with values less than cost reduce the value of the firm and should be rejected. In the case of mutually exclusive alternatives, when only one is to be chosen, the alternative with the greatest net present value should be selected.

According to E. Solomon’s symbols and methods, the net present worth can be ascer­tained as under: