If we go by the simplest of the meanings, Financial management basically means making the most of the money that you have. Financial management is a broader term which consists of various different specific management criterion. Here we will be talking about the investments and its importance in financial management.
Investment Management can be explained as the process of buying and selling of investments, banking and budgeting duties, all falling within a portfolio. Investment management, also known as Portfolio management is basically trading or securities to attain a certain investment objective.
Goals of Investment Management
The primary goal of investment management is to make money for the investors by smart trading and investment acquisitions. Now to do that it is important for the company to allocate its capital in a place with steady growth and future prospect.
So here are the basic goals related to Investment management:
*Recognize profitable investment opportunity and portfolio with a healthy rate of return.
*Manage the investment of funds between Fixed and Current Assets.
*To identify the exact opportunities for making an investment and getting the best possible return.
Managers can’t just invest in stocks as per their liking, the final decision to make an investment comes from a rigorous and detailed process of analysis a number of aspects. For any company, the common source of capital is either through Owners and Lenders (Outside entity).
The capital attained through these sources is available for investment, which will be invested in
*Company’s own business and
The investment decisions are taken by the board after analyzing and considering the rate of return as well as various risk factors. The decision will influence the size, growth, wealth and nature of business for the company.
A risk factor is an integral part of any investment and even if the risk can be minimized by disciplined research of the stocks, it can never be completely neutralized. So, a very important part of planning and research for investment opportunities is to minimize the risk involved.
There can be two ways to minimize the risk:
The first way doesn’t necessarily minimize the risk but covers up the risk involved due to a higher rate of return from the concerned investment. The investment can be made even when the risk is high but the returns will cover up the cost of capital and operational expenses and leaving sufficient margin to generate profit and cover up the risk involved in the process.
Next is what we can call safe investments, these have a considerably lower scope of profit but provide the company with a steady return and cover the cost of capital and operational expenses. The risk involved is minimal which is covered up easily by the return.
The nature of risks involved also influence the investment decisions. There can be many factors which can put your investment in risk, some of them are predictable but some can be unpredictable. Let’s take a look at a few situations which can jeopardize your rate of return,
*A certain policy which completely changes the pattern of operation eliminating or adding parts and materials to affect previous stocks you invest on.
*Change in customer’s behavior and purchasing habits.
*Advancements in technology causing your stocks to be outdated.
All the decisions are made keeping all the above points in mind. Acquiring and investing capital is a major part of the financial investment and influence the organization’s future to the core.