Financial management: What is it and why is it important?
Posted: Mon Dec 23, 2024 5:10 am
Financial management is considered a crucial discipline for the success of any organization. For this reason, it is essential to explore its definition, its fundamental principles, its importance, the elements that make it up and its types.
Are you passionate about numbers and dream of making strategic decisions that impact the future of a company? If you answered yes, then you should learn about financial management. It not only represents an elementary discipline within companies, but also a professionalization option for those seeking to influence the economic decisions of organizations.
This article allows you to enter the world of finance, where it is necessary to thoroughly understand what financial management is, what its fundamental principles are and why it is an indispensable tool for business success. With it, you can understand more about this strategic discipline and how it can be a springboard for your professional success.
What is financial management?
It refers to the planning, organization, direction and control of the financial activities of a company . It includes the application of general management principles to the financial resources of the entity. Therefore, it serves to properly manage capital and funds to achieve organizational objectives and increase shareholder value .
In his book Fundamentals of Financial Management (2010), James Van Horne explains that financial management is defined as "the activity of the firm concerned with the acquisition, financing, and management of assets with some overall goal in mind. Such a goal may be the maximization of shareholder wealth, the growth of the firm, or customer satisfaction." Thus, it seeks to optimize the use of resources to increase profitability and achieve short-, medium-, and long-term objectives.
Principles of financial management
The fundamentals that guide financial management are based on the search for efficiency and profitability. Thus, among the most important principles are the following:
Financial planning. It is essential to establish clear and precise financial objectives, as well as strategies to achieve them.
Efficient resource allocation. This involves the optimal distribution cp number format of financial resources to projects and activities that generate the greatest return.
Financial analysis. Tools and techniques are used to assess the company's financial situation and make informed decisions.
Financial control. Financial activities are continuously monitored to ensure that established objectives are met.
Decision making. Financial management allows you to evaluate different alternatives and choose the one that best aligns with the company's objectives.
Risk management. It is essential to be able to identify, analyse and mitigate financial risks.
Maximizing company value. Every financial action must contribute to increasing corporate value, which is the goal of financial management.
You may be interested in learning what financial performance evaluation is all about .
Importance of financial management
Financial management plays a fundamental role in the success of any organization, as it allows financial resources to be used efficiently to generate higher profits . This provides valuable information about the company's financial situation, allowing it to identify strengths and weaknesses . In this way, senior management can make sound financial decisions, choosing the best investment and financing options.
Financial management also maintains liquidity, ensuring that the company has resources available for its daily operations and short-term obligations. By having this control, it is possible to plan for the long term, establishing financial objectives and designing the strategies to be followed.
Elements of financial management
The activities that make up financial administration can be grouped into the following key elements:
Investment. It consists of allocating financial resources to assets that generate future returns.
Financing. Seeks to obtain the financial resources necessary for the operation of the company.
Profits. This involves analyzing and distributing the profits generated by the organization.
Budgeting. Plan future income and expenses to proactively manage finances.
Working capital management. It focuses on the management of the company's current assets and liabilities.
Types of financial management
There are different approaches within financial administration, depending on the scope of application. Thus, it can be classified into the following three fields:
Private financial management. Applies to the private sector, considering companies and other profit-making organizations.
Public financial management. Applies financial principles in the public sector, such as governments and government entities.
Personal financial management. It is aimed at the personal finances of individuals and families.
Keep reading and find out: What does a financial manager do?
Take advantage of your future with a career in finance
At Southern New Hampshire University , knowledge is the key to financial success. That's why we offer you a quality, accessible education designed to give you the skills and tools you need to master the world of finance. Whether you want to start your own business, climb the corporate ladder, or simply take control of your personal finances, we've got you covered.
To achieve these goals, SNHU offers you two online programs to stand out in the financial sector. On the one hand, there is the Bachelor of Business Administration with a concentration in Finance , which provides comprehensive training in the principles and practices of administration, with a financial focus. On the other hand, there is the Bachelor of Finance , which develops specialized skills in financial analysis, investment management, and strategic financial decision-making.
Both degrees are available 100% online and in Spanish, allowing you to study from anywhere and at your own pace. These programs are designed to provide the skills needed in a competitive global marketplace. To learn more about how to enter these programs, you can check out SNHU's eligibility criteria .
Are you passionate about numbers and dream of making strategic decisions that impact the future of a company? If you answered yes, then you should learn about financial management. It not only represents an elementary discipline within companies, but also a professionalization option for those seeking to influence the economic decisions of organizations.
This article allows you to enter the world of finance, where it is necessary to thoroughly understand what financial management is, what its fundamental principles are and why it is an indispensable tool for business success. With it, you can understand more about this strategic discipline and how it can be a springboard for your professional success.
What is financial management?
It refers to the planning, organization, direction and control of the financial activities of a company . It includes the application of general management principles to the financial resources of the entity. Therefore, it serves to properly manage capital and funds to achieve organizational objectives and increase shareholder value .
In his book Fundamentals of Financial Management (2010), James Van Horne explains that financial management is defined as "the activity of the firm concerned with the acquisition, financing, and management of assets with some overall goal in mind. Such a goal may be the maximization of shareholder wealth, the growth of the firm, or customer satisfaction." Thus, it seeks to optimize the use of resources to increase profitability and achieve short-, medium-, and long-term objectives.
Principles of financial management
The fundamentals that guide financial management are based on the search for efficiency and profitability. Thus, among the most important principles are the following:
Financial planning. It is essential to establish clear and precise financial objectives, as well as strategies to achieve them.
Efficient resource allocation. This involves the optimal distribution cp number format of financial resources to projects and activities that generate the greatest return.
Financial analysis. Tools and techniques are used to assess the company's financial situation and make informed decisions.
Financial control. Financial activities are continuously monitored to ensure that established objectives are met.
Decision making. Financial management allows you to evaluate different alternatives and choose the one that best aligns with the company's objectives.
Risk management. It is essential to be able to identify, analyse and mitigate financial risks.
Maximizing company value. Every financial action must contribute to increasing corporate value, which is the goal of financial management.
You may be interested in learning what financial performance evaluation is all about .
Importance of financial management
Financial management plays a fundamental role in the success of any organization, as it allows financial resources to be used efficiently to generate higher profits . This provides valuable information about the company's financial situation, allowing it to identify strengths and weaknesses . In this way, senior management can make sound financial decisions, choosing the best investment and financing options.
Financial management also maintains liquidity, ensuring that the company has resources available for its daily operations and short-term obligations. By having this control, it is possible to plan for the long term, establishing financial objectives and designing the strategies to be followed.
Elements of financial management
The activities that make up financial administration can be grouped into the following key elements:
Investment. It consists of allocating financial resources to assets that generate future returns.
Financing. Seeks to obtain the financial resources necessary for the operation of the company.
Profits. This involves analyzing and distributing the profits generated by the organization.
Budgeting. Plan future income and expenses to proactively manage finances.
Working capital management. It focuses on the management of the company's current assets and liabilities.
Types of financial management
There are different approaches within financial administration, depending on the scope of application. Thus, it can be classified into the following three fields:
Private financial management. Applies to the private sector, considering companies and other profit-making organizations.
Public financial management. Applies financial principles in the public sector, such as governments and government entities.
Personal financial management. It is aimed at the personal finances of individuals and families.
Keep reading and find out: What does a financial manager do?
Take advantage of your future with a career in finance
At Southern New Hampshire University , knowledge is the key to financial success. That's why we offer you a quality, accessible education designed to give you the skills and tools you need to master the world of finance. Whether you want to start your own business, climb the corporate ladder, or simply take control of your personal finances, we've got you covered.
To achieve these goals, SNHU offers you two online programs to stand out in the financial sector. On the one hand, there is the Bachelor of Business Administration with a concentration in Finance , which provides comprehensive training in the principles and practices of administration, with a financial focus. On the other hand, there is the Bachelor of Finance , which develops specialized skills in financial analysis, investment management, and strategic financial decision-making.
Both degrees are available 100% online and in Spanish, allowing you to study from anywhere and at your own pace. These programs are designed to provide the skills needed in a competitive global marketplace. To learn more about how to enter these programs, you can check out SNHU's eligibility criteria .