assignment#1

Q: the importance of financial management in the development of an

organization?

FINANCE:
Finance is the science of managing financial resources in an optimal pattern i.e. the
best use of available financial sources.
Finance consists of three interrelated areas:

1)Money & Capital markets, which deals with securities markets & financial
institutions.
2)Investments, which focuses on the decisions of both individual and institutional
investors as they choose assets for their investment portfolios

FINANCIAL MANAGMENT:
Financial Management, or business finance which involves the actual management of
firm.
FM is the management of financial resources – how to best find and use investments
and financing opportunities in an ever-changing and increasingly complex environment

"Financial management is the area of business management, devoted to a judicious use of

capital and a careful selection of sources of capital, in order to enable a spending unit to
move in the direction of reaching its goals." [Cited Gitman, 1986; Pg. 8]
This definition points to the four essential aspects of financial management,

They are:
- Financial management is a distinct area of business management - i.e. financial manager
has a key role in overall business management
- Prudent or rational use of capital resources -proper allocation and utilization of funds
- Careful selection of the source of capital - Determining the debt equity ratio and designing a
proper capital structure for the corporate
- Goal achievement - ensuring the achievement of business objectives viz. wealth or profit
maximization.

The essential objective of financial management can be categorized into two broad
functional categories -recurring finance functions and non-recurring or episodic finance
functions.

- Performing the regular finance functions including financial planning including assessing the
funds requirement, identifying and sourcing funds, allocation of funds and income and
controlling the use or utilization of funds towards achieving the primary goal of profit/wealth
maximization.
- Performing the non-recurring functions including, though not exclusively, the preparation of
financial plan at the time of promotion of the business enterprise, financial readjustment
during liquidity crisis, valuation of enterprise at the time of merger or reorganization and such
other episodic activities of great financial implications.

ORGANIZATIONAL DEVELOPMENT:
Organization development (OD) is a planned, organization-wide effort to increase an
organization's effectiveness and viability.
Warren Bennis has referred to OD as a response to change, a complex educational
strategy intended to change the beliefs, attitudes, values, and structure of organization
so that they can better adapt to new technologies, marketing and challenges, and the
dizzying rate of change itself.
OD is neither "anything done to better an organization" nor is it "the training function of
the organization"; it is a particular kind of change process designed to bring about a
particular kind of end result.
OD can involve interventions in the organization's "processes," using behavioural
science knowledge,as well as organizational reflection, system improvement, planning, and
self-analysis.

IMPORTANCE OF FINANCIAL MANAGEMENT IN THE DEVELOPMENT OF AN

ORGANISATION:

for the development and growth of a business you can never neglect the importance of
Financial Management. It is an essential tool that is required to move ahead with your
expansion plans. Generally, this critical aspect is disregarded because the entrepreneurs are
unaware of its advantages and uses. Financial reports can help aid in making important
future decisions.

Financial management is very important or significant because it is related to funds of

company. Financial management guides to finance manager to make optimum position of
funds. We can clarify its value in following 5 points.

1. With study of financial management, we can protect our business from precarious mis-
management of money.
We should invest in fixed asset if there is any other source of funds. In financial management,
we make optimum capital structure and we should buy all fixed assets out of share
capital money because, it will reduce the risk of repayment.
2. In financial management, we deeply study our balance sheet and all sensitive facts should
be watched which can endanger our business into loss. For example, a closing balance sheet
shows you, you have to pay large amount of debt in next year and you have blocked all the
money by purchasing goods or inventory. Financial management teaches you that this is not
good outflow of funds which is invested in inventory. Blocked inventory never generate
earning and your balance sheet’s stock value gives you idea that your company is not
capable to sell products quickly. Financial manager can elucidate you that overstocking will
increase go down expenses one side and it is also risky due to the danger of damage the
stock. Moreover, it increases risk of liquidity. Inventory management is the part of financial
management and merely using inventory management can be the best way to solve the
problem of overstocking.
4. An imprudent man never thinks return on investment but businesses are not
imprudent. So, get some knowledge of financial management, you can not endanger
your money.

5. Financial management works under two theories. One theory reins bad sources of
fund. This theory elucidates us that we should think cost, risk and control and these
should be minimum when we get money from others. Only financial management
makes good financial structure to minimize cost, risk and control of borrowed money.
Second theory elucidates or clarifies us that we should think about time, risk and return
before investing our money. Our ROI should be more than our cost of capital. Our risk
of investment should be least. We should get our money with high return within very
short-period. All above things can be possible only after study financial management.

CONCLUSION:
Taking a commercial business as the most common organizational structure, the key
objectives of financial management would be to:
• Create wealth for the business
• Generate cash, and
• Provide an adequate return on investment bearing in mind the risks that the business is
taking and the resources invested
these key objectives of financial management are the most crucial and helpful in the
development of an organization in the rapidly changing environment. Optimum allocation of
resources will bring about a greater capacity to improve, modify and change the culture of the
prevailing organization and pave way for development.