Definition of Financial Management
Financial Management is all activities or company activities related to how to obtain working capital funding, use or allocate funds, and manage assets owned to achieve the company's main objectives.
Objectives of Financial Management
The main objective of Financial Management is to maximize the value of the company or provide added value to assets owned by shareholders.
Scope of Financial Management
The scope of financial management consists of:
Financial Management is all activities or company activities related to how to obtain working capital funding, use or allocate funds, and manage assets owned to achieve the company's main objectives.
Objectives of Financial Management
The main objective of Financial Management is to maximize the value of the company or provide added value to assets owned by shareholders.
Scope of Financial Management
The scope of financial management consists of:
- Funding decisions, including management policies in corporate fundraising, for example the policy of issuing a number of bonds and company short and long term debt policies sourced from internal and external companies.
- Investment Decisions, Company investment policies to fixed assets such as buildings, land, and equipment or machinery, as well as financial assets in the form of securities such as stocks and bonds or activities to invest funds in various assets.
- Asset Management Decisions, Policies for managing assets owned efficiently to achieve company goals.
Financial Management Function
The main functions of Financial Management are as follows:
- Financial Planning, including Cash Flow Planning and Profit Loss.
- Budgeting, planning the receipt and allocation of budgetary costs efficiently and maximizing the funds owned.
- Financial Control, evaluating and improving the company's financial and financial systems.
- Auditing or Financial Examination, conduct internal audits of the company's finances that are in accordance with the rules of accounting standards and there are no deviations.
- Financial Reporting, provides reports on information about the company's financial condition and financial statement ratio analysis.
Financial Ratio Analysis
Analysis tools that are often used to determine the condition and financial performance of a company. The benchmark is usually by comparing the increase or decrease in achievement between two statements of financial position in two specific time periods.
The commonly used financial ratio analysis is grouped as follows:
- Liquidity Ratio, the value of a ratio to assess a company's ability to fulfill all financial obligations in the short term. Report in the form of analysis of the Current Ratio and Working Capital to Total Assets (WCTAR).
- Leverage Ratio, the ratio to assess how much funds are given by the shareholders or owners compared to the funds obtained from loans from the creditors. Reports in the form of Total Debt to Assets (DAR), Total Debt to Equity (DER).
- Activity Ratio, this ratio is used to measure management effectiveness in using its resources. All activity ratios involve a comparison between the level of sales and investment in various types of assets owned. Analysis report in the form of Total Asset Turn Over (ATO), Working Capital Turn Over (WCTO), Total Equity to Total Assets (EA).
- Rentability Ratio, this ratio is used to assess the level of management effectiveness seen from the profits generated on sales and investment companies. Analysis reports in the form of Return on Equity (ROE), Return on Assets (ROA), Earning Power of Total Investments (EPTI), Gross Profit Margin (GPM), and Operating Income (OI).
