The basis of financial management is formed by some fundamental concepts that represent its structure and determine the correct directions of development. The most important section of financial management is the choice of conditions for the expedient investment of a part of the capital.
Fundamentals of financial management
When developing the financial policy of the enterprise, it is necessary to coordinate the work of all departments of the enterprise. The set of means and methods used by companies to increase profitability and reduce the risk of insolvency is the definition of financial management. Obtaining the desired benefits from the labor activity of the enterprise in the interests of the owners is the main task of financial management.
The main functions of financial management in the enterprise management system are: internal financial planning, assessment and accounting of the financial position of the enterprise, management of the monetary structure, management of liquidity and working capital, risk management of financial management, conclusion of contracts with stock exchanges and financial funds. In turn, the financial part of an organization is a system of economic processes arising from the formation and use of its income.
Financial management concepts
A concept is a specific method of interpreting and understanding a phenomenon. The most important concepts of financial management express the point of view of individual phenomena of financial activity. Thus, the formation of the essence and direction of development of these phenomena occurs.
The concept of cash flow is applicable in the development of investment projects, which are based on a quantitative assessment of cash flow. This concept provides for the identification and duration of the flow of money, the choice of the discount rate, and also provides for the risks associated with this flow. In an income-generating business, there is a potential for risk. The concept of a compromise between profitability and risk provides for the achievement of a real relationship between them. The higher the desired profitability, the higher the level of risk, which gives a certain percentage of the impossibility of obtaining this profit.
The concept of an efficient securities market provides for the level of accessibility of all participants in this market to information. The concept of agency relations is aimed at equalizing the group interests of managers and the interests of business owners. The concept of assessing the cost of funds is a key link in the study of investment projects. This concept assumes the calculation of a minimum income level that covers the costs of maintaining a source of funding and allows you not to suffer losses.
Knowing the essence of the concept, their relationship leads to the adoption of the right decisions in the process of financial management of the subject.
