Gujarat BoardEnglish MediumSTD 12 CommerceOCMFINANCIAL MANAGEMENT5 Marks
Question
Explain the Importance of Financial Management.
✓
Answer
Introduction :
Human life depends on blood.
In the same way existence of business unit depends on finance.
That is why finance in business activity is possible without money.
Money matter is related right from establishment of business to its expansion and end.
After 1950 due to noteworthy changes is business environment and current economic trends at global level important of financial management has increased.
Big industrial units appoint financial advisors today.
Importance of financial management :
Estimation of financial needs :
Continuity business activity is maintained because financial management estimates the requirement of long term and short term capital in business.
Acquiring Finance :
After having the estimate of required amount, financial management acquires finance at the lowest cost and selects the sources economically.
Planning and controlling :
Financial management plan for financial resources and controls them so that it is utilization economically.
Distribution of Finance :
Financial management distributes money to each department each department is given sufficient finance.
Maintaining liquidity :
Financial management determines the part of the profit to be reinvested in business and the amount to be distributed as dividend among shareholders.
Management of current assists :
Current assists include cash, bank balance, debtors marketable securities etc Financial management formulate, policies for these current assists.
Financial decisions :
Financial management maintains co-ordination among capital budget, dividend policy, poloughing back of profit, etc and takes decisions.
If large amount is re-invested, cash for dividend distribution decrease.
Co-ordination between the two is necessary.
Increase in credit of business :
Through efficient financial management with utilization of adequate financial resources, timely payment of the employees and timely repayment to creditors become possible.
Conclusion :
The importance of financial management is noted logically from every related party.
Growth in economic welfare of shareholders or the owner’s of the company, development fund or goods to customers etc. Depend on efficient financial management.
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