Finance is a field that deals with the study of investments. It includes the dynamics of assets and liabilities over time under conditions of different degrees of uncertainty and risk. Finance can also be defined as the science of money management. Finance aims to price assets based on their risk level and their expected rate of return. Finance can be broken into three sub-categories: public finance, corporate finance and personal finance.
Financial management refers to the efficient and effective management of money (funds) in such a manner as to accomplish the objectives of the organization. It is the specialized function directly associated with the top management. The significance of this function is not seen in the 'Line' but also in the capacity of the 'Staff' in overall of a company. It has been defined differently by different experts in the field.
The term typically applies to an organization or company's financial strategy, while personal finance or financial life management refers to an individual's management strategy. It includes how to raise the capital and how to allocate capital, i.e. capital budgeting. Not only for long term budgeting, but also how to allocate the short term resources like current liabilities. It also deals with the dividend policies of the share holders.
Financial Management is a related aspect of finance function. In the present business administration financial management is an important branch. Nobody will think over about-business activity without finance implication.
Financial management includes adoption of general management principles for financial implementation. The following may be said as the related aspects of financial management raising of funds, using of these funds profitably, planning of future activities, controlling of present implementations and future developments with the help of financial accounting, cost accounting, budgeting and statistics.
It acts as guidance where more opportunities for investment is available. Financial management is useful as a tool for allotment of resources to various projects depending on their importance and repayment capacity.
Scope of Financial Management
Some of the major scope of financial management are as follows: 1. Investment Decision 2. Financing Decision 3. Dividend Decision 4. Working Capital Decision.
1. Investment Decision:
The investment decision involves the evaluation of risk, measurement of cost of capital and estimation of expected benefits from a project. Capital budgeting and liquidity are the two major components of investment decision. Capital budgeting is concerned with the allocation of capital and commitment of funds in permanent assets which would yield earnings in future.
Capital budgeting also involves decisions with respect to replacement and renovation of old assets. The finance manager must maintain an appropriate balance between fixed and current assets in order to maximise profitability and to maintain desired liquidity in the firm.
Capital budgeting is a very important decision as it affects the long-term success and growth of a firm. At the same time it is a very difficult decision because it involves the estimation of costs and benefits which are uncertain and unknown.
2. Financing Decision:
While the investment decision involves decision with respect to composition or mix of assets, financing decision is concerned with the financing mix or financial structure of the firm. The raising of funds requires decisions regarding the methods and sources of finance, relative proportion and choice between alternative sources, time of floatation of securities, etc. In order to meet its investment needs, a firm can raise funds from various sources.
The finance manager must develop the best finance mix or optimum capital structure for the enterprise so as to maximise the long- term market price of the company’s shares. A proper balance between debt and equity is required so that the return to equity shareholders is high and their risk is low.
Use of debt or financial leverage effects both the return and risk to the equity shareholders. The market value per share is maximised when risk and return are properly matched. The finance department has also to decide the appropriate time to raise the funds and the method of issuing securities.
3. Dividend Decision:
In order to achieve the wealth maximisation objective, an appropriate dividend policy must be developed. One aspect of dividend policy is to decide whether to distribute all the profits in the form of dividends or to distribute a part of the profits and retain the balance. While deciding the optimum dividend payout ratio (proportion of net profits to be paid out to shareholders).
The finance manager should consider the investment opportunities available to the firm, plans for expansion and growth, etc. Decisions must also be made with respect to dividend stability, form of dividends, i.e., cash dividends or stock dividends, etc.
4. Working Capital Decision:
Working capital decision is related to the investment in current assets and current liabilities. Current assets include cash, receivables, inventory, short-term securities, etc. Current liabilities consist of creditors, bills payable, outstanding expenses, bank overdraft, etc. Current assets are those assets which are convertible into a cash within a year. Similarly, current liabilities are those liabilities, which are likely to mature for payment within an accounting year.
Aims of Financial Management:
The aims of financial management should be useful to the firm’s proprietors, managers, employees and consumers. For this purpose the only way is maximisation of firm’s value.
The following aspects have place in maximising firm’s value:
1. Rise in profits:
If the firm wants to maximise its value, it should’ increase its profits and revenues. For this purpose increase of sales volume or other activities can be taken up. It is the general feature of any firm to increase profits by proper utilisation of all opportunities and plans.
Theoretically, firm gets maximum profits if it is under equilibrium. At that stage the average cost is minimal and the marginal cost and the marginal revenues are equal. Here, we can’t say the sales because there must be suitable market for the increased sales. Further, the above costs must also be controlled.
2. Reduction in cost:
Capital and equity funds are utilised for production. So all types of steps should be taken to reduce firm’s cost of capital.
3. Sources of funds:
It should be decided by keeping in view the value of the firm to collect funds through issue of shares or debentures.
4. Reduce risks:
There won’t be profits without risk. But for this reason if more risk is taken, it may become danger to the existence of the firm. Hence risk should be reduced to minimum level.
5. Long run value:
It should be the feature of financial management to increase the long-run value of the firm. To earn more profits in short time, some firms may do the activities like releasing of low quality goods, neglecting the interests of consumers and employees.
These trials may give good results in the short run. But for increasing the value of the firm in the long run, avoiding; such activities are more essential.
Skills and Copetencies needed in Financial management
You will need to show evidence of the following:
- commercial and business awareness
- excellent communication and presentation skills
- an analytical approach to work
- high numeracy and sound technical skills
- problem-solving skills and initiative
- negotiation skills and the ability to influence others
- strong attention to detail and an investigative nature
- the ability to balance the demands of work with study commitments
- good time management skills and the ability to prioritise
- the ability to work as part of a team and to build strong working relationships
- the capacity to make quick but rational decisions
- the potential to lead and motivate others
- good IT skills.
Career Opportunities and Job Prospects in Financial Management
- Data analyst
- Data scientist
- Licensed conveyancer
- Management consultant
- Purchasing manager
- Retail banker
- Tax adviser
- Accounting technician
- Actuarial analyst
- Business adviser
- Chartered accountant
- Chartered certified accountant
- Chartered management accountant
- Chartered public finance accountant
- Company secretary
- Forensic accountant
- Financial Planner
- Financial Manager
Admission Requirements for the study of Financial Management in Nigeria
The O'level subject combination and requirements needed to study Financial Management.
You require; Five SSCE credit passes to include, English Language, Mathematics, Economics and any other two science subjects from Accounting, Commerce Geography
In UTME, please note that English Language is Compulsory for this course. Therefore, the three (3) other JAMB UTME subject combination needed to study Financial Management under the Faculty of Business Studies in the above Universities include;
Mathematics, Economics and Accounting.