Functions of financial management

Financial management is a field related to financial resources in the organization and their main task is to carry out tasks related to financial planning and its implementation. The task of financial management is also to control the implementation of budgeting plans. It is necessary to manage financial resources properly, because it helps to implement other areas of management.Financial management is most important in commercial or transmission companies, banks, schools, hospitals, etc. Financial management is the search for and application of money in the economy, which occurs when making decisions that help achieve the strategic goal set by our company, which may be to increase the company's value.

Most commonly performed functions of financial management are:

• planning of asset distribution to various portfolios
• collecting information needed to calculate financial performance indicators
• select methods for accounting - accounting is the recording of business transactions by persons who have adequate training in the company's accounting books, which leads to a change in the balance of liabilities and assets, causing their reduction or increase. They can be recorded thanks to tabular techniques, which consist of capturing each event chronologically in the diary and the main book. Another is the registry technique in which data is stored in a register or a computer-assisted technique.
• business controlling - is based on continuous observation of tasks to determine unexpected deviations from standards and their cutting. It is also important to control your own decisions, that is, to compare the results with the norm we adopt as a base. Control activities should include setting standards, measuring and comparing results with the norm, and finally evaluating the results.
• assuring proper capital growth
• selecting best insurance methods (e.g. securitization)
• preparing decision for dividend pay - the dividend is part of the profit that is shown in the financial statements and is transferred for payment to the shareholders by the general meeting. A condition for payment of a dividend is also a resolution on transferring a part of the call to the previously mentioned shareholders. In other words, the dividant is that part of the profit that is not transferred to investments carried out in the enterprise, i.e. regular payments having source of profits which are reduced by investment expenses.
• money market monitoring and decision making
• preparing resources for growth of the company
• investments in money market and stock exchange - on the money market we perform financial operations for up to one year, they can be short-term debt securities, deposits and interbank loans (up to one year). The money is used to pay the current liabilities, therefore they are issued for a short period. The money market has a high degree of security and is used to manage liquidity. Debt instruments are instruments of this market.
• preparing optimal capital structure - the anliza of the capital structure and its assessment is to show us the sources from which funds have been sent to us, i.e. it helps to determine the sources of asset financing. The efficiency, structure and indebtedness of an enterprise are assessed. Debt ratios should be used for this.
• calculating shareholder value added - added value is based on free cash flows and is a measure of the company's shareholder validity to the weighted average capital we have invested. We can also call it the difference between the value of an enterprise and its indebtedness. Funds that shareholders will invest should bring profits.
• selecting source of financing - source of financing are cash resources that support and finance operations and are disclosed as liabilities in the balance sheet.
• etc.

Functions of financial management — recommended articles

Cash control — Performance analysis — Cash flow analysis — Accounting process — Early warning system — Cash Flow Plans — Debt capacity — Liquidity management — Bad debt recovery

References

• Merton, R. C., & Bodie, Z. (2006). Design of financial systems: towards a synthesis of function and structure. In The World Of Risk Management (p. 1-27).
• Block, S. B., Hirt, G. A., & Short, J. D. (1994). Foundations of financial management. New York: Irwin.
• Froud, J.; Haslam, C.; Johal, S.; Williams, K., (2000)., Shareholder value and financialisation: consultancy promises, management moves. Economy and Society, 29(1), No. 1, p. 80-110.
• Gordon M. Bodnar, Gregory S. Hayt and Richard C. Marston, (1998). Wharton Survey of Financial Risk Management by US Non-Financial FirmsFinancial Management, 27(4), p. 70-91.

Footnotes

Author: Karolina Tabak