The understanding of the financial management
This team I learnt the Financial Management, which is an important subject and a basic tool of management. The Financial Management is the
management of how to deal with Capital Budgeting, Capital Structure and the Working Capital in certain principles as a whole, and financial management is an integral part of the enterprise management, according to the financial legal system, and the principle of financial management, it organizes the enterprise financial activities, deal with financial relationship of an economic
management.
The goals of Financial Management
The enterprise is an organization, which is built for pursuing profit, and its starting point and destination is profit, so Financial Management first should consider the company’s profit, and there are some basic goals related with the profit.
The first goal is to maximize the profit. Its basic point is that profit
represented the enterprise’s new wealth, more profit then explaining the
wealth of enterprises increases, and the more approximates to corporate goal. But this kind of goal has its drawbacks that it does not consider profit obtained the time value factors, it would be difficult to make right decision with the same amount of money in different time point. What’ more it does not
consider the relationship between the profit and its invested capital, and finally it doesn’t consider the relationship between the profit and the risk it will take. While, the second goal is to maximize the current value per share of the existing stock. It means that the company's profit should related closely with the shareholder capital, and uses earnings per share to generalize the enterprise financial management goal, thus to avoid defects in the "profit-maximising gaol". But this goal still doesn’t consider earnings per share are obtained the time value of factors, in addition, It still does not consider risks. There’s a third goal that is enterprise wealth (value) maximization, and it means add shareholder’s wealth is the financial management’s goal. But it’s hard to measure. And the final goal is make the stakeholders’ profit maximum. And it means not only considers the creditor, the shareholders and related party interests, but also consider enterprise employees, customers and social responsibility of the enterprise factors, and strive to make the interests of all parties to maximize.
Financial Management decisions
So, when we make some financial decisions we should care all about the parts of the financial goal. And what’s more, we should understand the basic
types of financial management decisions. There are three types of financial management decisions: Capital budgeting, Capital structure, and Working capital management.
The first decision concerns the firm’s long-term investments. the process of planning and managing a firm’s long-term investments is called Capital budgeting. In capital budgeting, the manager tries to identify investment opportunities that are worth more to the firm than they cost to acquire, this means that the value of the cash flow generated by an asset exceeds the cost of asset. The types of investment opportunities that would typically be
considered depend in part on the nature of the firm’s business. Regardless of the specific nature of an opportunity under consideration, financial managers must be concerned nor only with how much cash they expect to receive, but also with when they expect to receive it and how likely they are to receive it. Evaluating the size, timing, and risk of future cash flows is the essence of capital budgeting.
While the second decision called Capital Structure refers to the specific mixture of long-term debt and equity the firm uses to finance its operations. There are two main questions when looking at the capital structure - 1) How much $ do we need to borrow to buy this long-term asset? 2) What are the least expensive sources of funds for the firm? For example, since we are thinking of buying this new crusher, we need to decide how we are going to afford this new machine. In this example, we determined that if we cut back a little bit on labor and in other areas, we would be able to afford the new machine. In regards to where the money will come from, we do not take out loans to buy long-term assets. We borrow from our company, and repay overtime.
The third decision concerns working capital management. The term working capital refers to a firm’s short-term assets, such as inventory, and its short-term liabilities, such as money owed to suppliers. Managing the firm’s working capital is a day-to-day activity that ensures that the firm has sufficient resources to continue its operations and avoid costly interruptions. This
involves a number of activities related to the firm’s receipt and disbursement of cash.
The core element in financial management
The three areas of corporate financial management are very broad and we should deal these decisions well to make profit for the company. And we
should also care about the core element in finance management__ cash flow. Cash flow is the movement of cash into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on the companies' value and situation. Cash flow is very important because it determines a project's rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return, and net present value. What’s more it determines problems with a business's liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even
while profitable. As an alternate measure of a business's profits when it is
believed that accrual accounting concepts do not represent economic realities. For example, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such a case, the company may be deriving additional operating cash by issuing shares, or raising additional debt finance. The impressions of the Financial Management
Firstly, financial management is a comprehensive management work. The development of social economy requires financial management making use of business activities value form implementation management. Control all the material conditions to achieve enterprise efficiency enhances unceasingly, wealth increasing purpose. Therefore, financial management is an
independent enterprise management, and is a kind of comprehensive management work.
Secondly, Financial management haves a large connection with various aspects in the Enterprise. In the enterprise, the capital of all involved with payment activities related to financial management. In fact, it is very rare that the departments in the internal enterprise do not deal with money. Therefore, financial management, often reaches each corners of the enterprise