Financial management is the field of management related to the financial resources of an organization. The execution of the following basic activities is part of financial management’s responsibilities:
- financial planning (budgeting),
- implementation of the financial plan (providing financing),
- control (controlling the implementation of financial plans).
- Appropriate management of financial resources is a factor supporting the implementation of other management areas, including strategic management, investment project management, and operational management.
Financial Management In The Enterprise
Financial management is a very wide area, which is particularly important and important in various types of activity, such as: in commercial and industrial companies, banks as well as financial institutions. In the public sector, financial management is extremely necessary. Transportation, schools, and hospitals are examples.
In order to run a business, an enterprise must have property. Then, the shareholders contribute the appropriate capital in various forms. In addition, the funds for financing the company’s operations include:
- loans are taken on the capital or money market,
- foreign funds that are obtained in the form of trade credits and bank loans.
As the company grows, its capital should increase. This should result not only from an increase in loans, shares, or credits but above all from the company’s net profits.
Foreign Enterprises
Foreign and own capital of the enterprise is mainly used to finance the purchase of long-term assets. E.g. machinery and equipment, real estate and transport, as well as materials for production. Besides, these capitals are both an important source of financing taxes, employee salaries, etc
As a result of both made and purchased goods being sold. Receivables from recipients arise, which realize the company’s profit. Cash collected from recipients can probably be reused to pay for (finance) the next cycle of the company’s operations.
The implementation of economic operations consists of the use of funds, namely their accumulation and spending for specific economic purposes.
Financial management is based on the search and acquisition of capital (sources of financing) and the distribution of this capital in the assets, this capital allows the implementation of various strategic goals of the enterprise. Such a goal may be to maximize the benefits for the company’s shareholders who have invested their funds in a permanent manner.
The company’s financial management is based on making decisions regarding the search for funds. Their application in the company’s economy. The given decisions make it possible to achieve a specific strategic goal of the enterprise. This goal may be the maximization of the enterprise value.
Financial Management Spheres
Financial management covers two spheres:
- the sphere of diagnostics, aimed at examining the condition of individual areas of financial management; diagnostic tests highlight the strengths and weaknesses of the financial economy of a given enterprise; financial analysis methods are used in diagnostic tests,
- decision-making sphere, a given sphere includes decisions related to long-term and current impact on financial phenomena in the enterprise.
Four groups of decisions with financial consequences can be distinguished :
- operational decisions – are primarily aimed at ensuring the current financial balance and payment capacity,
- investment decisions – capital allocation,
- financial decisions – selection of sources of financing for the enterprise,
- dividend decisions – sharing the financial result.
The group of operational decisions includes :
- planning sales profitability,
- establishing a sales program,
- adopting the rules for crediting recipients,
- approval of the form of repayment of operational liabilities arising from suppliers.
The group of investment decisions includes:
- decisions on investments in the area of financial fixed assets purchases,
- Investment decisions in the field of purchasing tangible fixed assets,
- Securities trades are used to classify short-term investment decisions.
For financial decisions may include :
- decisions aimed at obtaining auxiliary additional equity capital,
- deciding whether or not to use credit or take out loans
The group of dividend decisions includes:
- decisions by shareholders to distribute the profit to dividends. To the part invested in the enterprise.
- All the above-mentioned groups of decisions must lead to an increase in the owner’s goodwill.