What is financial management?

Financial Management — a system of management of the movement of financial resources and financial relations arising in the course of activity of the enterprise, firm, bank. The purpose of financial management is to maximize profits based on a rationalization of financial policy.

Tasks of financial management:

  1. Efficient use of financial resources;
  2. Cash flow management;
  3. Optimization of money turnover;
  4. Cost optimization;
  5. Risk minimization;
  6. Ensuring a return on assets and capital;
  7. Ensuring the current financial stability of the enterprise, liquidity, and solvency.

Together with strategic management, financial management should contribute to increasing the value of the company.

Financial management:

  1. The process of managing the money turnover, formation and use of financial resources of the enterprise, organization;
  2. The science of financial management, building financial relations to achieve the enterprises, organizations of their purposes.

Financial management is a type of professional activity, directed at achieving the goals of the enterprise (firm) by the effective use of the whole system of financial interrelations, funds, and reserves, forming the financial mechanism of enterprise activity in the conditions of the market economy.

Financial management is a part of management, represents a synthetic sphere of activity, covering various directions of management work. Scientific and practical developments in the field of finance, credit, statistics, economic and financial analysis serve as a base, tools for solving tasks, which financial management faces.

Financial management as a management process consists of an object (a set of conditions for the implementation of monetary circulation, cost circulation, financial relations between the state and business entities) and the subject (managers — special groups of persons managing the enterprise, organization) of management.

The main method of financial management is financial analysis:

  1. Solvency and financial stability of the enterprise, organization;
  2. The creditworthiness of the enterprise and liquidity of its balance sheet;
  3. Financial results;
  4. Turnover of current assets;
  5. Estimation of bankruptcy potential.

Financial coefficients are used as a tool for financial analysis.

Financial management has a system of specific management objects. Among the main objects are assets and capital of the enterprise, its cash flows and financial resources, real and financial investments, risks, etc.

Concretization of certain areas of financial management is largely determined by industry-specific features of enterprises, as well as their organizational and legal forms. Thus, the sectoral specifics of enterprises’ activities cause significant differences in the duration of their operating cycles, capital intensity of production activities, the structure of assets to be formed, the composition of financial risks, etc. Organizational and legal forms of enterprises’ activities cause significant differences in the volume and structure of capital used, sources of financial resources formed, the procedure of net profit distribution, forms of financial control, etc.

Taking these features into account, the functions and directions of financial management should be specified at each enterprise.

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