ABOUT FINANCIAL MANAGEMENT
By Financial Management, in general, is meant a set of measures aimed at reaching financial stability. In particular, a foremost aspect of financial management is efficient distribution of economic resources or, in other words, capital funds, as far as they contribute greatly to the company’s prosperity. Therefore, financial management is concerned with the questions of funds procurement and their effective use.
Speaking about funds, they can be raised from multiple sources which have different scales of potential risk, cost and control. It is Financial management that encompasses risk, cost and control. For a perfect risk and control balancing, the cost of funds should be at minimum.
Robust financial management is absolutely necessary in all types of organizations and assumes effective resources utilization. It is mismanagement of financial affaires that is the most widespread mistake leading to liquidation of an organization. Thus, even in a prosperous period you can’t but pay a great deal of attention to the company’s financial management since finances themselves guarantee survival.
Financial Management pursues the following objectives:
- organization’s survival in terms of sharp competition;
- bankruptcy and other financial risks avoidance;
- increase in production volume
- profit and wealth maximization
- expenditure minimization
Financial Management methods:
There are multiple methods of funds procurement. They can be received from long-term and short-term sources. Capital leverage trading on equity is a critical method by which the return to common shareholders can be increased.
Such methods as average rate of return, pay back, internal rate of returns, net present value and profitability index are used for evaluating capital expenditure projects. A firm can significantly increase its profitability by means of an efficient utilization of current resources or by efficient management of working capital.
In the same way, the method of ratio analysis can be used for evaluation a firm’s work. It allows evaluating the profitability, solvency, liquidity and growth aspect of the firm.
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