Objectives of Financial Management

If the future were perfectly known, business forecasts could be made without error. Financial management is that managerial activity that concerns planning and controlling the company’s financial resources. According to economists, every resource is scarce and as a result, it requires planning and control in order to achieve the best out of the resources available and this is tied to finance (Ndubuisi, 1998).

The objectives of financial management should be viewed in the light of the objectives of the enterprise as a whole. The following objectives are hereby identified:

1. To pay dividends 
2. TO maintain market price of the shares of stocks 
3. To seeking growth of the company 
4. To avoiding high levels of risk 
5. To maximise profit and minimise risk 
6. To maintain some level of liquidity 
7. To maintain control that is, proper safeguarding and utilisation of funds 

SELF-ASSESSMENT EXERCISE 3

• Identify the various objectives of financial management. 

The Need for Financial Planning

Financial planning is deciding in advance the financial needs of a business to achieve the basic objective of the firm, which is more than getting the maximum profits out of minimum efforts. Therefore, the basic aim of financial plan is to get funds at the minimum cost and utilise them effectively. In other words, financial planning involves monitoring the inflow and outflow of funds for the good of the business (Varma and Agarwal, 1988).

In an enterprise, the chief executive officer in charge of finance of the enterprise pulls together, reviews, analyses, interprets and plans the requirements and consequences of financial planning . According to Jain (2000), financial planning includes the following functions:

1. To determine the financial resources required to meet the operating programme of the company; 
2. To work out how much of the requirements are to be met by generating funds internally by the company and how much is to be obtained from outside the company; 
3. To develop the best possible plans for obtaining the funds needed from the external sources; 
4. To establish and maintain a system of financial controls for governing the allocation and the use of funds; 
5. To formulate programme for the provision of the most effective relationships between product-cost-profit; 
6. To analyse the financial results of all operations; 
7. To report these analysed facts to the top management of the enterprise; and 
8. To make recommendations relating to future operations. 

SELF-ASSESSMENT EXERCISE 4

• Itemise and briefly discuss the functions of financial planning. 

CONCLUSION

The above discussions show that finance is quite relevant to any business concern. Hence, its function in business enterprises hinges specifically on acquiring funds for the firm, managing funds within the firm and planning for the expenditure of funds on various assets. In view of that, it is pertinent for businesspersons to get involved in the practice of acquisition, marshalling, planning and controlling funds. This is because finance is the basic resource used for the creation of and maintenance of other resources.

SUMMARY

In this unit, a lot issues were discussed. More light was shed on the meaning and functions of finance. We also discussed the objectives of financial management. Finally, we examined the need for financial planning in business enterprise.

TUTOR – MARKED ASSIGNMENT

• Mention and discuss three definitions of finance. 
•  Identify and briefly discuss the two kinds of finance function you know. 
• Examine the functions of financial planning.