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
IT 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. Financial management plays an important role in the public sector, such as transport, schools or hospitals.
In order to run a business, an enterprise must have property. Then, the shareholders contribute the appropriate capitals in various forms. In addition, the funds for financing the company’s operations include:
- On the capital or money market, loans are taken out.
- Trade credits and bank loans are two ways to raise international funds.
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.
The enterprise’s foreign and own capital was primarily used to fund the acquisition of long-term properties, such as machinery and equipment, real estate, and transportation, as well as production materials. Besides, these capitals are both an important source of financing taxes, employee salaries, etc
Enterprise value
As a result of the sale of manufactured products, as well as purchased goods, receivables from recipients arise. It realizes the company’s profit. The funds received from the beneficiaries would almost certainly be used to pay for (finance) the company’s next phase of 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 and 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; Medical studies use financial analysis techniques.
- decision-making sphere, a given sphere includes decisions related to long-term and current impact on financial phenomena in the enterprise.
There are four types of financial decisions that can be distinguished:
- operational decisions -are mainly concerned with maintaining the existing financial balance and payment capability,
- 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:
- investment decisions in the field of buying financial fixed assets,
- decisions on investments in the area of purchases of tangible fixed assets,
- Securities trades are used to identify short-term investment decisions.
For financial decisions may include :
- decisions aimed at obtaining auxiliary additional equity capital,
- decisions to take out loans or credits.
The group of dividend decisions includes:
- decisions by shareholders to distribute the profit to dividends, as well as to the part invested in the enterprise.
- All the above-mentioned groups of decisions must lead to an increase in the owner’s goodwill.