What are the factors affecting financial management?

When general management principles are applied to enterprise financial resources then it is called financial management. That means it involves planning, directing, controlling and organizing financial activities.

Elements of financial management are investment decisions, financial decisions and dividend decisions.


The objectives of financial management are as follows −

  • Ensures adequate and regular supply of funds.
  • Ensures adequate returns to their shareholders.
  • Optimum utilization of funds.
  • Ensures investment safety.
  • Strong capital structure is planned.


The functions of financial management are as follows −

  • Finance manager is responsible for estimation of companies capital requirements.
  • Capital structure has to be decided. This may involve short term, long term or combination of both equity analysis.
  • Company has to make a choice of additional funds like issue of shares and debentures, loans from financial institutions, public deposits (bonds).
  • Financial manager takes the responsibility in allocating funds in profitable ventures.
  • Net profits or surplus amount is distributed in the form of dividend declaration or retained net profits.
  • Cash management is a very important aspect where a finance manager has to make decisions in managing the cash (cash for daily operations etc.)
  • Finance manager should have control over company finances. This can be done through ratio analysis, financial forecasting etc.


Factors affecting financial management are explained below −

  • Regulations
    Company's senior people will work and increase their rapport with regulators and make the business environment effective. Management will set up a department to monitor developments and their effect on their financial activities. Internal auditors also give answers like how to generate profits within the law.

  • Solvency
    Investors will analyse the solvency of a corporation to determine, whether it is good to invest or not. Financial professionals contribute their intellect and help the firms to operate without having much debt. Financial managers also help in increasing assets.

  • Securities markets
    Positive runs in markets make a corporate firm an investor choice that affects corporate financial strategies. Positive run of markets also tells about a good economic trajectory. There are many exchanges which help the corporate to implement their strategies.

  • Corporate credit
    It helps companies to work in short terms, keeping their long-term expansion. Finding the right combination of debt and equity plays an important role in firm success. Failure in accessing the combination may lead to failure. Some of the corporate credits are loans, credit lines, bonds, overdrafts etc.

Updated on: 17-Jul-2021

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