Explain the Significance of Financial Administration.
The significance of financial administration can be discussed under the following heads:
Success of Promotion Depends on Financial Administration.
One of the most important reasons of failures of business promotions is a defective financial plan. If the plan adopted fails to provide sufficient capital to meet the requirement of fixed and fluctuating capital an particularly, the latter, or it fails to assume the obligations by the corporations without establishing earning power, the business cannot be carried on successfully. Hence sound financial plan is very necessary for the success of business enterprise.
Smooth Running of an Enterprise.
Sound financial planning is necessary for the smooth running of an enterprise. Money is to an enterprise, what oil is to an engine. As finance is required at each stage of an enterprise, i.e. promotion, incorporation, development, expansion and administration of day-to-day working etc., proper administration of finance is very necessary.
Proper financial administration means the study, analysis and evaluation of all financial problems to be faced by the management and to take proper decision with reference to the present circumstances in regard to the procurement and utilization of funds.
Financial Administration Coordinates Various Functional Activities.
Financial administration provides complete coordination between various functional areas such as marketing, production etc. to achieve the organizational goals. If financial management is defective, the efficiency of all other departments can, in no way, be maintained.
For example, it is very necessary for the finance department to provide finance for the purchase of raw materials and meeting the other day-to-day expenses for the smooth running of the production unit. If financial department fails in its obligations, the production and the sales will suffer and consequently, the income of the concern and the rate of profit on investment will also suffer. Thus financial administration occupies a central place in the business organization which controls and coordinates all other activities in the concern.
Focal Point of Decision-Making.
Almost, every decision in the business is taken in the light of its profitability. Financial administration provides scientific analysis of all facts and figures through various financial tools, such as different financial statements, budgets etc., which help in evaluating the profitability of the plan in the given circumstances, so that a proper decision can be taken to minimize the risk involved in the plan.
Determinant of Business Success.
It has been recognized, even in India that the financial manger splay a very important role in the success of business organization by advising the top management the solutions of the various financial problems as experts.
They present important facts and figures regarding financial position an the performance of various functions of the company in a given period before the top management in such a way so as to make it easier for the top management to evaluate the progress of the company to amend suitably the principles and policies of the company.
The financial management assist the top management in its decision-making process by suggesting the best possible alternative out of the various alternatives of the problem available. Hence, financial management helps the management at different level in taking financial decisions.
Measure of Performance.
The performance of the firm can be measured by its financial results, i.e. by its size of earnings riskiness and profitability are two major factors which jointly determine the value of the concern. Financial decisions which increase risks will decrease the value of the firm and on the to the hand, financial decisions which increase the profitability will increase value of the firm. Risk an profitability are two essential ingredients of a business concern.
