What is the importance of learning financial management?

Answer 1

Financial Management Importance

Financial management importance can be explained as management of money matters. It deals with managing money in all areas of life. Financial management includes personal financial management and organizational financial management. Personal Finance management will help you manage the finance of your home which includes budgeting, saving, investing, debt management and other aspects related to personal money where by an individual can achieve personal goals. Whereas organizational finance management means the management of finance of a business or organization in order to achieve financial objectives. In an organization the key objectives of financial management would be to create wealth for business, generate cash and gain maximum profits from the investments of the business considering the risks involved.

Financial management is very important for both individuals and organizations because it deals with managing the funds. It guides a company and individual to make optimum use of money to achieve maximum returns. For an individual financial management will help to save more and thus invest more. Since in includes debt management, it will guide the individual to create a financial plan whereby all the debts are paid on time. It will help to spend less and earn more, this will lead to more savings and thus a secure future. Financial management will help in retirement and investment planning .

Lack of financial management in business will lead to losses and closure of business. With the study of financial management we can protect the business from miss management of money. Without proper financial management debts will not be paid in time and may make the businessman insolvent. Financial management will study the balance sheet of the company and keeps a watch on all sensitive facts that can endanger business into loss. It teaches us that we should think about cost, risk and control in any business and borrowed money must be minimum. It also explains the importance of time, risk and returns on investment. The return on investment must always be more than the cost of capital, risk investment should be least. We should get our money within a short period of time, all these facts are important for success of any business.

Financial management consists of several aspects of business where a finance manager makes decisions on the basis of the financial data with regards to allocating funds, financing business and to develop policies to achieve business goals. Different types of accounting tools are used to manage finance in any business. For example ratios are used to compare performance of the business periodically and also with other businesses. The profitability ratio measure the profit margin, return on assets and return on equity. The liquidity ratio measure the current ratio and quick ratio that provide information on the company's ability to pay off debts. This ratio analysis enables the organization to compare and measure its performance. Financial management evaluates the performance of the business and keeps a check on the profitability aspect of the business.

The importance of financial management can be summarized as follows:

1. It brings economic growth and development through investments , financing, dividend and risk management decision which help companies to undertake better projects.
2. When there is good growth and development of the economy it will ultimately improve the standard of living of all people.
3. Improved standard of living will lead to good health and financial stress will reduce considerably.
4. It enables the individual to take better financial decision which will reduce poverty, reduce debts and increase savings and investments.
5. Better financial ability will lead to profitability which will create new jobs and in turn lead to more development , expansion and will promote efficiency.

In personal life, financial management helps us to create a comfortable life with an assurance of a secured future and freedom to spend money to make us happy. The importance of financial planning and management is reflected in all the areas of personal and business life , it must not be avoided. All individuals no matter what their financial capacity is, must learn and study financial management and adapt it to improve their life.