8 Major Scope of Financial Management – Subjectquery.com

8 Major Scope of Financial Management – Subjectquery.com
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The Scope of Financial Management Notes includes various points like:-

  1. Financial Planning,
  2. Securing Capital Funds,
  3. Financial Supervision,
  4. Financial Control,
  5. Financial Decisions,
  6. Preparation of Annual Financial Statements,
  7. Estimation of Financial Performance,
  8. Evaluating the Impact of New Financing,
  9. Miscellaneous Functions.

1. Financial Planning-

This is the primary scope of financial management and it means planning is the process of determining the objectives, goals, and ideas for the business in previously (Thinking in advance). It is also the estimation of identifying the goals, initial policies, and programmes to achieve the predetermined goals. Financial Planning includes various points like:-

  • Deciding Financial Objectives-

Deciding the financial objective is the major factor to determine the basic goals of profit and wealth maximization.

  • Establishment of Policies and Procedures-

Policies and Procedures are the main character to define the code of conduct of any enterprise or business i.e., Policies indicates the guidelines and procedures formulates the rules and regulations of the whole company.

  • Arrangement of Financial Plan-

In this, financial plan helps to prepare the planning strategy and design a suitable format of capital structure, which includes:

  1. It helps to estimate the size of the capital structure,
  2. It helps to design the capital structure with various sources of funds. Those sources of funds may be owned or borrowed.
  3. Accommodate in the process of financial planning for future development and helps to keep pace with the innovative or technological changes.

2. Securing Capital Funds-

This is the secondary scope of financial management and it means when the quantum of the capital structure has been designed, and after that, the next step is to arrange the necessary funds from various sources like individuals and various institutions.

In this function, capital is the biggest source for running a specific business because it arrange the selling and marketing concepts of corporate business.

3. Financial Supervision-

This is the third scope of financial management and it means to supervise the collection of funds for doing a proper job. Once the source of capital will be carefully selected and the funds of capital have been received, then after, the company or organization work for the welfare of the particular company. It includes various steps for defining the supervision aspects:

  • Establish Effective Assets Management-

It helps to establish a proper fixed assets management and formulating the new capital-budgeting techniques. Once the assets are properly established, then the responsibility of the company is to utilize fixed assets in a proper manner and do proper maintenance with the production department.

  • Maintaining Optimum Level of Liquidity-

In every organization, the finance department always keep our eye constant for watching a cash-in-flows and cash-outflows for assuming and determining the “Surplus-Cash and “Deficit Cash” and make the proper arrangements for reducing the overflows and underflows and make try to maintain the optimum level of liquidity or cash.

4. Financial Control-

This is a fourth scope of financial management which includes proper utilization of investment in miscellaneous assets like manpower. Financial control is formulated through a budgetary control system through which the actual cost of the company will be kept within limits and targeted profits earned by the company. It includes various process like:

  1. It helps to fix the standards of the company in advance,
  2. It helps to build the sustained comparison between actual cost and pre-determined standards,
  3. It helps to outlin the remedial action,
  4. It helps to establish the follow-up system,
  5. It helps to modify the standards and norms.

5. Financial Decisions-

This is the fifth scope of financial management and it means to taking financial decisions are very helpful to maximize the growth and potential of the business. It includes various types like- (i) Investment Decisions, (ii) Financing Decisions, and (iii) Dividend Decisions.

  • Investment Decisions-

The investment decisions are the part of the financial decisions made by the investors and top-level management for the purpose of establishing the investment opportunities.

  • Financing Decisions-

The financial decision is also the main decision which is made by the financial manager related to the financial-mix of the company. It is formulated with the allocation of funds and borrowing for investment decisions.

  • Dividend Decisions-

The dividend decision is also the main decision which is taken by the financial manager for distributing the dividend in the group of shareholders. Thus, the dividend is also known as the profit of the company.

6. Preparation of Annual Financial Statements-

This is the sixth scope of financial management and it means, financial statements includes Profit & Loss A/C and Balance Sheet. These two main aspects are shows the financial reputation or condition of the company during a working period usually a financial year. It shows the income and expenditure of the company also.

Financial Statements are designed by always keeps finance manager and its started from 1st April to 31st March (1 Year).

7. Estimation of Financial Performance-

This is the seventh scope of financial management and it means an annually and time-to-time evaluation of performance is the very crucial task for financial management and financial manager. For doing the evaluation, there are various turnover variables like ratio analysis, trend analysis, net profit, cost per unit, and Return on Investment plays a very crucial role to judge the performance of a firm of past and current years.

8. Evaluating the Impact of New Financing-

This is the eighth scope of financial management and it means, nature of modern management is becoming future-oriented and follow the objectivity. In this case, time-to-time growth and development are very important for doing a specific business because it helps the business to build a huge empire.

Now it’s the turn of finance, in this function finance plays an essential role to make a successful business for the purpose of development and growth.

9. Miscellaneous Functions-

This is the ninth scope of financial management and it means, the finance area is a very broad concept and it includes a bulk amount of scope or functions for determining the financial management. The number of functions includes tax-planning, management of the provident fund, gratuity, safety of securities, social insurance funds and so on.

Scope of Financial Management in Traditional and Modern Approach-

The Traditional Approach-

Till the middle of the 20th century, the nature of financial management is performed very well in terms of allocation of funds and the proper development of the business. It includes various features to define the old concept:

  1. It was descriptive in nature and help the business to raise the finance.
  2. The old concept looks like static in nature,
  3. The old approach function followed the long-term growth but ignores the management strategy, working capital, capital budgeting techniques, and planning.
  4. It helps to make the code of conduct to the modern techniques,

The Modern Approach-

The modern concept of financial management looks like a very broad concept and it also works for the development of an integral part of the management. It now plays a role of decision making for the purpose of improving the business operations with using proper methods or techniques.

This concept helps to associates the insider management with the outsider management. Instead of the preservation of liquidity and confined to the raising of funds, it is work with the help of financial planning, coordination, and control system for doing the proper business environment. So, that’s the reason, modern management plays a crucial role rather than traditional management.

It includes various features like-

  1. It helps to maintain the continuity of transactions,
  2. Wider form,
  3. It is the necessary part of the successful management,
  4. It helps to measure the performance.

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