Functions of financial management
In order to understand the essence and functionsfinancial management, you need to understand the structure of capital, learn how to analyze it, and then make financial decisions. From this position, the functions of financial management of any organization are related to the receipt of external funds and their further effective allocation.
The main functions of financial management are based on the following solutions:
- Investment solutions are related to which assets to choose forinvestment of enterprise funds. Acquired assets can be long-term and short-term. The first will bring income in the future, after a certain period of time, this is capital budgeting. It is necessary if an already existing asset does not justify the funds placed or simply selects an asset from several alternative ones. Here, the essential point is the risk analysis and the evaluation of benefits, because the expected income will be in the future, and far. The evaluation of benefits provides some standards for considering this benefit (barrier norms, minimum norms on income, etc.), that is, it is necessary to understand and measure the cost of capital.
Short-term assets during the year are transferred tocash, this is working capital management. This part of financial management is as important as capital budgeting. short-term survival at the moment provides success in the future. It is important to ensure a balance between profitability and liabilities. If the organization is liquid, it means that it has enough working capital, it places funds in current assets. If the funds are insufficient, if it is impossible to meet current obligations, the firm has a risk of bankruptcy. There is another version of the unfavorable development of events: too much money in current assets, which has a bad effect on profitability.
- Financing. Here you need to know the theory of the structure of capital,which reflects the interaction of debt and shareholders' income. First of all, this is the correct ratio of debt to equity, which leads to an optimal capital structure. In addition, you need to be able to establish the required capital structure in each specific case.
- Dividend Policy. The chosen policy of the organization inplan to further use the profits. The financial manager should know what share of the profit should be paid to shareholders in the form of dividends, and what proportion is retained for reinvestment.
These three fundamental decisions determinefunctions of financial management. Usually, the functions of the financial management of the subject and the management object are singled out. The functions of the subject unite forecasting, organization, planning, motivation, control. The second type of functions include the organization of money turnover and financial work, the supply of the organization with financial means.
Forecasting is the prediction of changesfinancial condition of the facility or its individual components. Planning is a system of measures for creating planned tasks that will help in the implementation of these tasks. The organizational function implies the regulation and coordination of personnel for the implementation of the financial program. Regulation is a constant impact on management objects, and coordination is achieved through the consistency of all components of the management system. Motivation is the achievement of the employees' interest in the results of their work. Control usually involves checking the implementation of plans and the financial work itself. The control function is based on the analysis of financial results, which, in turn, is an important component of financial management.