Scope of Financial Management

In an organization, finance department takes control over the  decisions related to finance. The finance department  has to coordinate with other department such as production, marketing etc. Financial management covers a wide area with multidimensional acivities which are needed to cooperate with each other to achieve financial goals. Following are the scope of financial management

1. Financial Management and Economics :

Concepts of micro and macroeconomics are of great relevance in financial management. Microeconomic concepts like demand and supply, cost theory, production theory etc. are very useful for any financial manager. In the same way, macroeconomic concepts of inflation, per capita income, aggregate-demand, aggregate supply etc. are also useful for the finance manager.

2.Financial Management and Accounting.

A finance manager has to take managerial decisions, most of which are related to future. Accounting records provide a base for future decisions. Extensive analysis of historical accounting information is made for future financial decisions. Cost and Management accounting provides useful accounting data to finance managers.

3. Financial Management and Mathematics

Finance functions make use of various mathematical tools and techniques. Time value of money, discounting and compounding, economic order quantity etc. are widely used in capital budgeting and working capital management. Nowadays,  modern techniques of econometrics are being used in decision making along with correlation, regression, and other statistical and mathematical techniques.

4. Financial Management and Marketing

Marketing managers make various marketing decisions. They frame plans regarding pricing, product promotion, product mix etc. they also make decisions about market segmenting, targeting and positioning, choice & length of distributional channels. Finance managers work with marketing managers on the most suitable plans and allocate needed funds. Thus marketing and financial manager are related to each other.

5. Financial Management and Human Resource

HR department provides personnel to all department of a firm. A finance manager has to take decisions about  allocation of funds for recruitment, selection, training, and development of manpower in the organization. Thus, a finance manager is in close contact with HR manager for such decisions. Effective decisions related to manpower cannot be taken if both departments don’t work in harmony with each other.

6. Financial Management and Production Management

Factors of productions are employed to undertake production. These include land, labour, capital and entrepreneurship. All these require returns in the form of rent, wages, interest and profit. All these payments are sanctioned by the finance department.

Finance Function