Financial management is an activity planning, budgeting, audit, management, control, search and storage of funds owned by an organization or company. management Activities
Financial management related to the three activities, namely:
Activities use of funds, the activity to invest in various assets.
Activities proceeds, namely activities to obtain financial resources, both from internal funding sources as well as external funding sources.
Asset management activities, namely after the funds obtained and allocated in the form of assets, the fund should be managed as efficiently as possible.
A finance manager in a company must know how to manage all the elements and in financial terms, this must be done because finance is one of the important functions in achieving the objectives of the company.
Elements of financial management should be known by a manager. Let’s say that a financial manager did not know what-what are the elements of financial management, it would appear difficult to run a company.
Therefore, the financial manager should be able to find out all the activities of financial management, especially analyzing the source and use of its funds to realize the maximum benefit for the company. A financial manager must understand the flow of money in circulation, both external and internal.
Financial Management Function
Here is a brief explanation of the function of Financial Management:
Financial planning, income and expenditure to make plans as well as other activities for a certain period.
Financial budgeting, follow-up of financial planning by making details of expenditures and revenues.
Financial Management, used company funds to maximize the funds available by various means.
Finance search, find and exploit the resources available for the operational activities of the company.
Financial storage, raising the company as well as storing and securing these funds.
Financial control, evaluation and improvement of finances and financial systems in the enterprise.
Audit, internal audit on the existing corporate finance to avoid deviations.
Financial reporting, providing information about the financial condition of the company as well as an evaluation
When associated with this objective, the financial manager functions include the following:
Supervision over costs
Setting a price policy
Predicting the future earnings
Measuring or explore the cost of working capital
Objectives of Financial Management
Objectives of Financial Management is to maximize the value of the company. Thus, if one day the company is sold, then the price can be set as high as possible. A manager should also be able to reduce the flow of money in circulation in order to avoid unwanted actions.
Analysis of Funding Sources and Uses
Analysis of the source of funds or fund analysis is very important for the financial manager. This analysis is useful to know how funds are used and the origin of the acquisition of those funds. A report that describes the origin of the source of funds and use of funds. The analysis tool that can be used to determine the condition and financial performance of the company is the analysis of the ratio and proportion.
The first step in the analysis of the source and use of funds is a report of the changes prepared on the basis of two balance sheets for two times. The report describes the change of each of these elements that reflect their source or use of funds.
In general, financial ratios are calculated can be grouped into six types:
Liquidity ratio, this ratio to measure a company’s ability to meet its short-term financial obligations.
Leverage ratio, this ratio is used to measure how much of the funds that are supplied by the owner of the company in proportion to the funds obtained from the company’s creditors.
Activity Ratio, this ratio is used to measure the effectiveness of management in the use of its resources. All the activity ratio involves a comparison between the level of sales and investments in various kinds of treasure.
Profitability ratio, this ratio is used to measure the effectiveness of management as seen from the profit generated on sales and investment companies.
Growth ratio, this ratio is used to measure how well the company maintain its economic position of economic and industrial growth.
Valuation Ratios This ratio is a measure of the company’s achievements of the most complete because of these ratios reflect the combined effects of the risk ratio with the ratio of the return.
Definition of Capital
The term “capital” is usually interpreted to mean many things, the terms of capital expenditures the company can be divided into two, namely: capital active and passive capital. Active capital is the wealth or the use of funds, while passive capital is a source of funds.
Financial manager is someone who has the right to take a decision that is very important in the field of investment and financing company. The financial manager is also responsible for the financial sector in a company.
Understanding Functions and Objectives of Financial Management. Definition of Financial Management
Financial management is any activity or activities of the company related to how to obtain working capital financing, use or allocate, and manage assets to achieve the main objectives of the company.
Objectives of Financial Management
The main objective of Financial Management is to maximize the value of the company or provide added value to the assets owned by shareholders.
Scope of Financial Management
Scope of Financial Management consists of:
Funding decision, including management policies in the search company’s funds, such as policies issued a number of bonds and debt policy short and long term company sourced from internal and external.
Investment Decision, Policy venture capital investment to fixed assets or Fixed Assets such as buildings, land and equipment or machinery, as well as financial assets in the form of securities such as stocks and bonds or activity to invest in various assets.
Decisions Asset Management, assets management policy efficiently to achieve its goals.
Financial Management Function
The main function of Financial Management are as follows:
Planning or Financial Planning, Cash Flow Planning covers and Income.
Budgeting or budget, reception planning and budget allocation efficiently and maximize cost-owned funds.
Controlling or Financial Control, evaluation and improvement of finances and financial systems.
Auditing or Audit, internal audit for the financial companies to comply with existing rules and accounting standards to prevent deviation.
Reporting or Financial Reporting, provide information reports about the company’s financial condition and ratio analysis of financial statements.
Financial Ratio Analysis
The analysis tool that is often used to determine the condition and financial performance of the company. Benchmark typically by comparing the increase or decrease in achievement between the two statements of financial position at two specific time period.
Financial Ratio Analysis commonly used are grouped as follows:
Liquidity Ratio, the ratio for assessing the company’s ability to meet all financial obligations in the short term. Reports in the form of analysis and Working Capital Current Ratio to Total Assets (WCTAR).
Leverage Ratio, the ratio to assess the extent of the funds provided by the shareholders or owner as compared with funds obtained from loans from the creditors. Reports in the form of Total Debt to Assets (DAR), Total Debt to Equity (DER).
Activity Ratio, this ratio is used to measure the effectiveness of management in the use of its resources. All the activity ratio involves a comparison between the level of sales and investments in various types of assets. Analysis report in the form of Total Asset Turn Over (ATO), Working Capital Turn Over (WCTO), Total Equity to Total Assets (EA).
Rentability Ratio, this ratio is used to assess the effectiveness of management as seen from the profit generated on sales and investment companies. The report analyzes the form of Return on Equity (ROE), Return on Assets (ROA), Earning Power of to Total Investment (EPTI), Gross Profit Margin (GPM), and Operating Income (OI).