Goals of Financial Management-Types of Financial Management Goals

Goals of Financial Management

Financial management goals may be defined in several ways. Official goals, operational goals, and operational goals can all be grouped together under the umbrella term “operational objectives.” Official goals are the organization’s overarching objectives. Formal financial management goals include maximising the rate of return on investment and the market value of each share.

Operational goals reflect the organization’s true objectives. They are goal-oriented and assist in decision-making. Expected return on investment, cost of capital, and debt-equity requirements, for example, are established with a time horizon in mind, or their allowed ranges/limits are static while keeping the official goals in mind. The operational goals of financial management are more concentrated, tangible, and verifiable.

The scope, composition, and timeliness of several sorts of finance are discussed. Official, operational, and operational goals are organised in a pyramidal structure, with official goals at the top (pertaining to senior executives), operative goals in the centre (pertaining to middle management), and operational goals at the bottom.

Types of Financial Management Goals

Financial management goals may also be classified functionally. Return-on-investment goals, solvency-on-investment goals, liquidity-on-investment goals, valuation-on-investment goals, risk-on-investment goals, and cost-on-investment goals, among others.

Return-related goals are those that seek to maximise, minimise, or average returns. What should the lowest possible return on a project be in order for the firm to accept it, what should the average return be in order for the firm to accept it, and what should the greatest possible return be in order for the firm to accept it (since risk grows with return)? (because risk grows proportionately to reward).

Similarly, goals such as solvency, liquidity, and market value can be imagined; however, you must specify to what extent the stated objective element is significant and should be actively pursued/and the amount of the stated objective factor required; the minimum, average, and maximum levels must be indicated.

Goals for Financial Management

Financial plans and projections aim to increase the organization’s efficiency in both current and future operations. The planning process aims to align the organization’s operational and capital investment activities with its overall cash flow capabilities.

Cash flow predictions determine the extent of the firm’s short- and long-term goals. This objective guarantees that money are received and distributed to various company operations in a timely way.

Additionally, financial planning guarantees that the business makes successful long-term investments. Capital budgeting, for instance, determines the financial viability and profitability of long-term assets prior to their acquisition.

Create a Rainy Day Fund

An emergency fund is money set aside to meet unexpected needs. To begin started, a budget of $300 to $2,500 is a reasonable place to start. When you attain that objective, consider increasing it so that your emergency fund can cover more significant financial troubles, such as unemployment.

If you lacked an emergency fund prior to the COVID-19 outbreak, you probably wish you had one today. If you have one, it is possible that you have drained it and require replenishment.

Management of Risks

Risk management is a critical objective of corporate finance since it focuses on one of the most sensitive aspects of commercial operations. Financial management makes suitable recommendations about contingency measures for operational and strategic risks.

Insurance and automated financial management systems protect business owners and employees from the dangers of theft, fraud, and embezzlement. Additionally, internal and external auditing techniques assist in the detection of fraud and other financial irregularities.

Establish a Budget

“You cannot know where you are going until you first know where you are.” “This requires developing a budget,” explains Lauren Zangardi Haynes, a fiduciary and fee-only financial planner at Spark Financial Advisors in Richmond and Williamsburg, Virginia. “You may be astonished at how much money is lost each month.”

Exertion Controls

The financial management function imposes internal controls on financial resources. According to the London School of Business and Finance, financial managers’ primary objective is to optimise resource use and allocation within the organisation.

Internal controls, such as who has the authority to collect and deposit money or award supplier contracts, enhance financial activity monitoring and prevent corporate owners or workers from breaking financial principles or weakening transparency.

Internal financial controls are being reinforced as a result of the senior financial management team and internal auditors reviewing them.

Internal financial control failures, such as those at Enron, Tyco, and WorldCom in the early 2000s, can have a significant impact on a company’s financial reporting.

Eliminate all Credit Cards

Experts disagree on whether it is best to pay off credit card debt first or to save for an emergency. According to some, you should save for an emergency fund even if you have credit card debt, as each unforeseen cost will add to your debt.

Others say that you should priorities paying off credit card debt first since the interest rates are so high that accomplishing any other financial objective becomes significantly more difficult. Choose whatever philosophy makes the most sense to you, or include components of both.