Financial management is an activity of planning, budgeting, examining, managing, controlling, searching and storing funds owned by an organization or company. Many people assume that financial management is only a record of accounting money and is the responsibility of the financial department. In fact, financial management is very broad and important for the sustainability of a business.
Financial management in a company regulates the activities or activities of companies related to how to obtain working capital funding, use and allocation of funds, and manage assets owned by the company to achieve company goals.
Main Activities of Financial Management
Financial management has three main types of activities for a business, along with an explanation.
Obtain Company Funds
Obtaining company funds is an activity that aims to obtain sources of funds. Whether it comes from the company’s internal or sourced from the company’s external. There are two main sources of business funding, namely equity and debt. The two funding sources are as follows:
1. Equity funding (own capital). Can be obtained from individual savings, friends and relatives, other individual investors, large companies, venture capital companies, and the sale of shares.
2. Funding from debt (loans). Can be obtained from friends or relatives, other individual investors, suppliers of raw materials in the form of asset lenders, commercial banks, programs supported by the government, non-governmental financial institutions, large companies and venture capital companies.
Financial management calculates how much money is needed by the company to keep going and make an allocation of these funds for the right activities or activities.
Using Company Funds
Using company funds is an activity in using or investing existing funds in various forms of assets. The use of these funds is made in a change report prepared on the basis of two balance sheets for two periods. The report illustrates the changes in each of these elements that reflect the source or use of funds.
1. Leverage Ratio, this ratio is used to measure how much funds are supplied by the company owner.
2. Liquidity Ratio, this ratio is to measure the company’s ability to meet short-term financial obligations.
3. Rating Ratio, this ratio is the most complete measure of company performance.
4. Leverage Ratio, this ratio is used to measure how much funds are supplied by the company owner.
5. Activity Ratio, this ratio is used to measure the effectiveness of management in using its resources.
6. Growth Ratio, this ratio is used to measure how well the company maintains its economic position.
7. Profitability Ratio, this ratio is used to measure the effectiveness of management as seen from the profits generated against the company’s sales and investment.
Of course financial management takes the decision to use these funds in accordance with the objectives of the company. Decisions taken have been approved by directors or company leaders so that the use of funds is in the right needs.