Scope of Financial Management As a Career

A financial manager controls the budget of an entire organisation’s business process. S/he also handles financial decisions such as procuring and utilisation of funds for a company to yield optimal profits. In fact, the scope of financial management is quite vast and has evolved over the last decades. You need technical familiarity with accounting principles in addition to overseeing daily managerial tasks and understand how this discipline differs today from its old approach. Let’s explore this broad role of finance. 

 

Scope of Financial Management | Approaches

There are two broad approaches to financial management. One is traditional and the other, modern, and each of their functions differs. 

Traditional Approach to Financial Management 

Earlier financial management’s main focus was on procuring resources that are either short- or long-term, from financial institutions like banks. The financial manager would then mobilise these funds through various assets that can be traded, which include bonds and equity shares, among others. In the traditional approach, the finance function aligns with accounting and complies with legal standards. 

Modern Approach to Financial Management

The modern approach is necessary as globalisation started to transform the global economy. The financial industry has seen many changes due to recent technological innovations in the recent years. These factors have contributed to a larger and deeper finance environment that needs in-depth analysis. The old approach no longer works as it cannot reach the range of decisions that financial management demands today.

The modern financial management approach focuses on efficiency. The financial manager of today needs to evaluate a company’s asset requirements, funds and recognise alternative ways how to finance and utilise the assets. For that, s/he looks into different concepts such as capital budgeting, capital management, etc. 

The modern financial manager is responsible for making three types of decisions that are interrelated to one another. 

1. Investment Decisions: This type of decision refers to ones that drive maximum profit. The financial manager has to control that a particular investment should never have less profit. Referred to as hurdle rate, it is a metric that allows financial managers to evaluate whether they should make an investment decision. This helps in prioritising investments as well as reducing risks.
2. Financing Decisions: These refer to ensuring a firm’s working capital is optimum. Using the basic finance principles on capital structure (debt and equity), depreciation, along with observing the stock market, s/he makes a finance decision, be it, for raising or arranging funds. 
3. Dividend Decisions: It is basically the payout to the shareholder from your business’s profits. Modern financial managers determine the company’s dividend policies. 

Scope of Financial Management | Functions

Now that you have an idea about the modern approach to financial management, here are the different functions of a financial manager.  

1. Planning – The financial manager has to determine how much capital a firm needs. The fund requirement is dependent on the current cash flow and s/he has to make sure it remains positive and risk-free. 
2. Creating a Budget – Financial managers need to create a budget and ensure it allocates finances in the right way. They have to create detailed reports as well.
3. Evaluating Risks – There are many risks that financial managers have to be aware of. While there can be unforeseen market risks such as the impact of the pandemic, sometimes, customers are not able to pay on time, which indirectly affects the business value. 
4. Setting Standard Procedures – Financial managers head a financial team and make sure all the financial reports and processes are recorded accurately.

Learn about the functions of financial management

Career and Courses in Financial Management

A career in financial management is quite lucrative and satisfying. Based on your experience, you can earn up to 30 LPA, as per AmbitionBox.  If you plan on becoming a financial manager and are not sure where to start, you can pursue the financial management courses. Check out Professional Certificate Programme in Financial Analysis and Financial Management on Eruditus or Masters in Financial Management by K.J.Somaiya Institute of Management. Do note that you should ideally go for a postgraduate programme in this field as you are already expected to have a thorough knowledge of accounting or a related subject. 

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