June 22, 2024

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Techniques of Financial Management

In the field of finance, financial management refers to the planning and control of the company’s finances. It consists of various financial techniques such as capital raising, allocation, short-term budgeting, and dividend policies of share holders. The primary objective of financial management is profit maximization, which is achieved when marginal cost and marginal revenue are equal. Wealth maximization, on the other hand, refers to increasing the shareholders’ wealth.

Among the techniques used to manage money is risk analysis. Financial management involves the decision-making process of a firm by analyzing past, present, and future performance. Usually, financial management focuses on future competitiveness of an enterprise. It requires professional expertise and a deep understanding of the market economy. Listed below are some of the techniques of financial management:

Finance 101 introduces basic concepts, principles, and analytical techniques related to financial management. The course also covers the time-value of money and risk-return tradeoff. The topics also include capital budgeting, dividend policy, and investment appraisal. The study uses a case study methodology to collect data from a variety of secondary sources. In this way, researchers could look for relevant articles and use specific search words to find information on each company.

Working capital management is another technique. This method frees up cash from accounts payable, accounts receivable, and inventory. By implementing these techniques, companies can increase their ability to invest and acquire, while reducing their capital employed. Furthermore, working capital management improves the productivity of assets. Hence, this technique is useful for companies that depend on external funds for their daily operations. And finally, it helps organizations minimize their dependence on outside funding sources.

Modern financial management is analytical and conceptual. Financial decisions made by a business are often reviewed by an expert panel. Various stakeholders, including employees, are sought in advance before making a final decision. After gathering input, financial experts extrapolate the required information from the responses. They then make a final decision based on these responses. After all, the financial decision-making process is only one of the many aspects of managing a company’s finances.

Financial ratios provide a framework for analysts to make quantitative judgments. These ratios are calculated from the financial statements of a firm. A comparison of financial ratios between firms shows the relative strengths and weaknesses of each firm. Similarly, effective working capital management includes techniques such as ABC analysis, fixation of inventory levels, and cash management models. This practice can help firms improve their performance. Therefore, it is vital for small businesses to have an understanding of financial management.

Small business owners can also benefit from this course. The course covers principles of financial management in nonprofit organizations and introduces them to financial management tools and systems. The course focuses on the practical application of accounting, budgeting, and resource allocation. It also examines fiscal record-keeping and control problems. Throughout the course, students are expected to use spreadsheet software. There are several case examples and required texts to complete the assignments. Several journals and articles are also used as sources of information.