Purpose of Financial Management is to maximize the value of a company. Thus, if one day the company is sold, the price can be set as high as possible. A manager must also be able to suppress the flow of money circulation in order to avoid unwanted actions. Efficient financial management needs the existence of purposes and goals, which are used as standard in assessing the efficiency of financial decisions.
The company's goal is maximizing the welfare of the owner. The amount of stock owned shows the ownership evidence of a company. Shareholder wealth is shown by the market price of the company, which is also reflection of investment, financing and asset management decisions. The success of a business decision is judged by the impact on stock prices.
Steps in Financial Management
Management has three important steps; planning, implementation and research, the three steps when implemented financial management becomes financial planning, implementation and assessment steps.
1. Planning (Financial Forecasting)
Financial forecasting in financial management is used to estimate the financial needs in the future. If the financial management does not try to anticipate the future financing needs of the company, then crisis will happen when treasury income is less than treasury outcome. Good planning is intended to anticipate and prepare the company to face the future condition, which, when the company should require the presence of additional finance, and also when the company is not able to generate treasury income.
2. Implementation (financial planning and budgeting)
To obtain more accurate estimate of the amount and timing of financing needs, it requires treasury budget. Percentage method for financial forecasting provides very useful introduction and low cost to develop more detailed treasury budget, which will be used to estimate the financing needs.
3. Research (budget function)
Beside as a tool for planning and management control, budget is also a tool for management to lead an organization in strong or weak position (Nana Fatth, 2000).
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