Financial management:

Financial management involves planning, allocation and control of financial resources of a company. Financial management is essential as it controls the financial operations of a company. For a construction company, the decision to bid for a project will depend on its financial status which in turn will be governed by financial management principles. The decision to bid for a project will depend on various factors namely whether the company have enough funds or require outside financing, whether to acquire the equipment through purchase or acquisition through renting or leasing, whether to carry out the entire work or subcontract a portion of the work etc. If the company uses its own funds for the project, it may have an adverse effect on its financial status as it will reduce the liquid asset thus affecting company's working capital. The construction industry differs from other industries because of its unique characteristics and accordingly the financial management principles are applied for using the financial resources of the company. Generally the construction companies receive the payments from the owners at specified time intervals as the construction work progresses and owners often retain certain amount subject to the satisfactory completion of the project. Thus the terms and conditions for receipt of payments from owners affect the cash flow of the construction companies and need the changes in allocation of financial resources. Further construction companies often subcontract some portion of the work (as required) to the subcontractors, which in turn affect the cash flow. The financial management decisions include the decisions for investment, financing and distribution of earnings. For construction companies the investment decisions relate to investment in the business i.e. investment of funds in acquiring the assets (both current assts and long-term assets) to be utilized in the projects for the expected return along with the risk of cash flows associated with uncertain future conditions. The financing decisions depend on decision to investment the funds and the resources possessed by the construction companies. In addition the financing decisions are also controlled by other factors namely source of financing (from banks or other financial institutions), cost of financing i.e. interest cost on the loan and the financing duration. The decision for distribution of earnings or profits of the company depends on the dividends to be paid to the stockholders and the retained earnings to be reinvested in the business to increase the return. Thus for any company or organization, financial management has to ensure the supply of funds in acquiring the assets and their effective utilization in business activities, to ensure the expected return on the investment considering the risk associated and optimal distribution of the earnings.