Why is it necessary to study financial management?
Today, one of the main conditions for the stable functioning of any enterprise is a competently and correctly chosen business strategy. And financial management plays a key role in creating this strategy.
The essence of financial management
Financial management is a financial science that studies methods of efficient use of the company’s equity and debt capital, ways to obtain the highest profit with the least risk, and a rapid increase in capital. Financial management answers the question of how you can easily and quickly turn a company from an uninteresting one to one that is attractive to investors.
This is a certain system of principles, forms, and methods that is used to correctly regulate the financial activities of an enterprise. It is financial management that is responsible for making investment decisions and finding financial sources for them. That is, by and large, it answers the questions of where to get the money and what to do with it next. The relevance of the application of financial management is also due to the fact that modern economic realities and the requirements of the world market imply constant development. Today, a successful business cannot stand still, it must grow, expand, find new ways of self-realization.
Financial management goals
The main goal of financial management is to maximize the market value of an enterprise, which realizes the ultimate material interests of the owners of its capital. In the process of realizing this goal, financial management is aimed at solving the following tasks:
- Providing the enterprise with a sufficient amount of financial resources for its continuous development;
- High financial stability of the enterprise in the process of its development;
- Optimization of cash flow and maintaining the constant solvency of the enterprise;
- Maximizing the profit of an enterprise through the efficient use of its assets;
- Minimization of the level of financial risks in the activities of the enterprise.
Financial management functions
The functions of financial management at the enterprise are determined by the system of tasks facing it. The main functions of financial management:
- research of the external economic environment and forecasting of the situation in the financial market;
- development of the financial strategy of the enterprise;
- analysis and planning of financial activities of the enterprise;
- making decisions on the financial aspects of the operating (production and commercial) activities of the enterprise;
- making investment decisions that provide the most effective ways of enterprise development;
- effective interaction with government bodies, operators, and subjects of the financial market infrastructure on certain aspects of the financial activities of the enterprise;
- coordination and control over the implementation of management decisions in the financial activities of the enterprise.
Directions of financial management
Financial management has a system of specific management objects. These objects include:
- assets and capital of the enterprise,
- his cash flows and financial resources,
- real and financial investments,
- risks, etc.
Taking into account the objects of financial management at the enterprise, the following areas of financial management are distinguished:
- formation of the required volume of assets and optimization of their composition;
- formation of the required amount of capital and optimization of its structure;
- management of the company’s cash flow by areas of activity – operating, investment, financial;
- management of current assets in general and in the context of their individual elements;
- management of non-circulating assets;
- management of real and financial investments;
- management of the formation of financial resources at the expense of their own internal and external sources;
- management of attraction of borrowed funds;
- financial risk management;
- financial management and prevention of the threat of bankruptcy.
Specification of certain areas of financial management is largely determined by the industry characteristics of enterprises, as well as their organizational and legal forms.
Thus, the sectoral characteristics of enterprises cause significant differences in:
- the duration of their operating cycles,
- the capital intensity of production activities,
- the structure of the assets being formed,
- the composition of financial risks, etc.
Organizational and legal forms of activity of enterprises cause significant differences in:
- the volume and structure of the capital used,
- sources of formation of financial resources,
- the procedure for distributing net profit,
- forms of financial control, etc.
Taking into account these features, the functions and directions of financial management are concretized at each enterprise.
About financial management
The topic of monetary relations, which is associated with the formation, use, and regulation of the resources of the organization. Financial management is aimed at managing the movement of financial resources and financial relations that arise between business entities in the process of movement of financial resources. The question of how to skillfully manage these movements and relationships is the content of financial management. Financial management is the process of formulating a financial management goal and exerting influence on finance using the methods and levers of a financial mechanism to achieve the goal. One of the effective methods is the use of the Haskell test, which allows you to quickly identify weaknesses in financial management.
Financial management in organizations is in many ways similar to accounting. But accounting is concerned with keeping track of transactions that have already been made (and therefore accounting for “historical” financial information). And financial management looks to the future and is engaged in analyzing the effectiveness and planning more upcoming financial transactions.
Financial management is one of the many areas of management science, management, from which it draws both strategy and management tactics. In this case, the strategy refers to the general direction and way of using funds to achieve the goal. This method corresponds to a certain set of rules and restrictions for making decisions. The strategy allows you to concentrate efforts on decision options that do not contradict the adopted strategy, discarding all other options. After achieving the goal, strategy as a direction and means of achieving it ceases to exist. New goals pose the challenge of developing a new strategy. Tactics are specific methods and techniques for achieving a set goal in specific conditions.
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