Basics of Financial Management Introduction to Financial Management
Basics of Financial Management
Introduction to Financial Management display the movement of funds (money, capital and other financial assets), by which the company gets involved into different quantitative and qualitative money relations with different entrepreneurial subjects, employees and all other subjects of its financial environment
Corporate money flow foreign investor Interes t tax Other costs FIRM + owner Output reinvestment dividends Mar ket Revenue – Profit
Function of financial management All operations in the company reflect themselves into funds of money, capital and other resources Financial goals are integral part of the firm’s goals from both short and long term period point of view
Financial management Subjective economical activity, aimed at acquiring necessary amount of money and capital from different financial sources, its allocation into different forms of non-cash property and distribution of the profit with the main goal of Maximization of market value of managed company
Financial management goals Maximization of the value Maximization of the profit – makes provisions concerning: Expected profitability Riskiness Social aspects Agency costs
Partial financial goals Rentability Liquidity Solvency Stability
The Relationship of accounting and finance • Financial management • Acquiring and allocation of the capital • Financial accounting • Acquiring of acquired and allocated capital • Financial analysis • Managerial accounting • planning, controlling and decision-making based on calculations of costs
Sources of financial informations Primary source: accounting statements In CF statement Out A Balance sheet L C Income stat. PS Fixes assets operations Own capital investingt operating activity financial financing FB Current assets Foreign capital extraordinary P R
Scope of financial management Financial decision-making Financial analysis Financial planning Financial control
Principles of FM Principle of cash flow Principle of net present value Respecting the time factor Considering the risk Optimization of the capital structure Efficiency degree of capital markets Planning and analyzing of financial data
Financial surrounding of company Level of economic activity Government financial policy Competitive environment Legislative provisions and regulations Labor market Foreign trade and foreign exchange rate development Financial market
Typology of enterprises - financing From capital markets From financial intermediaries From holdings or other industrial groups
Decision-making about: The volume of the capital The structure of the assets The investing of capital Profit distribution Different forms of mergers and aquisitions
Specialty of short-term FM Decision about size and structure of current assets and its parts Decision about optimal mix of short-term capital Decision about the protection from different risk types
Phases of FM Problem definition and goal setting Information analysis Setting of different solution scenarios Determination of criteria for optimal scenario selection Realization of the selected scenario and its verification concerning the goal
Time value of money and FM In decision making about investments In capital structure optimization In determining the market value of the total assets and its parts
Protection against risk Setting the risk limits (setting the maximal buying or minimal selling price) Risk diversification (investments into different assets) Transfer of the risk (insurance, derivatives) Creation of reserves
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