Features of Financial Management

 In the early stage of the last century financial management emerged as a separate field of study. Specially with the flourishment of join stock companies need of financial management increases considerably. Some features of financial management are common in case of all types of business concerns, but in the corporate sector there are some unique features of financial management. Following section of our discussion we will try to focus on these unique features along with the common features. Regardless of the type of business these features of financial management are common.

Financial Management Common Features

Financial Planning: One of the primary task of financial management is preparation of financial plans. Depending on the nature of investment projects both short and long term plans are prepared in the light of principles of financial management.

Investment Decision: Financial management is basically concerned with the evaluation of implementation of investment decision.

Forecasting Flow of Funds: Another basic feature of financial management is prediction of inflow and outflow of funds to assist investment and financing decision.

Identification of Sources of Funds: To implement investment decision adequate fund is essential. Thus identification of probable sources of funds is another key aspect of financial management.

Investment: Only 'proper investment' can help to maximize the wealth of a firm. Financial management gives top priority to ensure proper investment.

Retention and Distribution of Profit: Profit is not only the reward for past investment, but it is also act as a foundation for feature investment. Desired return from an investment creates a sense of satisfaction, but if it is not managed properly then it can create serious dissatisfaction. Thus another major concern of financial management is to take smart decision regarding the retention and distribution of profit.

Fund Raising: A routine feature of financial management is raising of funds. Timely & efficient fund raising ensures smooth operations of a firm.

Protection of Investment: In the earlier section of our discussion we have mentioned that proper investment can ensure wealth maximization of a firm. But taking appropriate investment decision and implementation of investment is indispensable.

Financial Management Unique Features

Besides the aforesaid common features financial management has some unique features incase of a joint stock company. In order words in the corporate arena the role of financial management is much more complicated in comparison to that in other forms of business. In this paper most of the topics of financial management will be discussed in the context of corporate sector. Let us have a glamps on the unique features of financial management.

Debt Equity Ratio Analysis: Creation of optimum debt equity mix is another characteristics of corporate finance. minimize the cost of capital financial management analyzes different debt equity mixes try to reach at optimum level.

Procedural Analysis of Investment Decision: Incase of joint stock company the amount of investment is much more than that of other business concerns. Moreover professional managers take investment and other related decisions on behalf of the shareholders. Slight mistake or non consideration of valuable aspect may jeopardize the existence of the firm. Thus by using different capital budgeting techniques investment proposals are evaluated. Now a days analytical software are 'artificial intelligence' also used to appraise investment decisions.

Risk Return Trade Off: Risks associated to a particular investment are analyzed through statistical techniques and compared to various levels of returns. Every investment decision is taken on the basis of risk return trade off.

Agency Problem: While acting on behalf of the owners, the professional managers may concentrate on their own interest instead of the owners. This may lead to a problem which is known as agency problem. Incase of joint stock company agency problem is a negative but almost unavoidable aspect of financial management.

Controlled by Professional Managers: One of the major features of stock company is 'separation of ownership from the management', due to this the owners of a company do not take part in the management directly. Professional managers play vital role in the management of the company along with financial management.