Introduction
Financial management is a gradual utility of any organization concerned with arranging, raising, directing, and ordering funds to run a business and reach appropriate goals. Any firm needs money to acquire physical assets, pay suppliers, and take production measures (Raymond, 2020). This article will discuss three main fiscal management categories: capital budget, capital structure, and working capital management, and the types of decisions involved in each category.
Capital Budgeting Management
Refers to the planning process of deciding if an organization’s fixed assets are valuable for being assigned money through the business’ capitalization structure. The assets may include new machines and projects (Raymond, 2020). Decisions in capital budgeting include accept-reject decision, whereby the firm invests in an accepted plan and discards investing in a rejected project. Suggestions that produce enormous profit than a particular essential cost of capital are accepted, and the rest excluded. Mutually exclusive project decision includes a competition of projects whereby acceptance of one lead to rejection of others. Capital rationing decision occurs in a position where the organization has limitless assets where only autonomous investment tenders producing higher incomes better than some pre-determined levels are accepted. In this case, the firm has more acceptable savings than how much the business can finance.
Capital Structure Management
Refers to how a firm acquires money through debts or equity securities. Debit funding comes in as pledge concerns, while equity results from reserved incomes (Raymond, 2020). The supervision group considers an organization’s debt-to-equity proportion, which gives feedback on how vigorous or unsafe the firm is monetary. Capital structure decision concerns the sources of cash from where the long-term fund is raised and the percentage in which the entire sum is received through the sources of money. Asset structure decision also entails defining how the project will be sponsored.
Working Capital Management
Refers to bookkeeping policy and accounting approaches projected to keep records of current possessions, debts, cash flow, inventory revenue proportion, and working capital quotient. This type aims to ensure that the business has available cash to cater to short-term debts and operating budgets and improve earnings (Bhattacharya, 2021). The manager decides how current possessions such as cash and accountabilities like bills are managed. The importance of controlling working capital is assuring the firm of money to pay bills and invest for interests. If working capital is not managed correctly can lead to bankruptcy of the business even though the business can make profits after a long time.
Objectives of Financial Managers
Fiscal administrators are responsible for ensuring the health economy of the company. The responsibilities involve handling the funds and ensuring no loss is incurred by the firm (Raymond, 2020). The managers ensure optimum profits are achieved and wealth exploited, whether in petite or extensive periods, no matter the corporate size. The supervisors are responsible for minimizing unnecessary costs, maintaining company growth, planning for funds, controlling, and leading other employees, and reporting to the boss on how activities are going on. The leaders assess banking activities and economic performance, manage documents and payrolls, file taxes for the firm, and identify mergers and acquisitions that can improve the company’s income.
Conclusion
In conclusion, financial management helps ensure that business assets are properly utilized, and liabilities properly paid to increase profits. Managers make decisions that are worth increasing an organization’s economy rather than incurring loss. Capital management ensures records are kept on all expenses made and profits made. Not correctly managing assets can lead to a firm’s bankruptcy, even if the business can catch up after some time.
References
Bhattacharya, H. (2021). Working capital management: Strategies and techniques. PHI Learning PVT. Ltd.
Raymond M. Brooks, (2020). Financial management: Core concepts, (4th ed.). Pearson