We explain what financial management is, its purpose, and its importance is. In addition, its general characteristics, risks, and benefits.
Financial management or corporate finance is called a branch of management sciences dedicated to the analysis and improvement of monetary investment decisions made by companies , as well as the tools available to evaluate them.
Broadly speaking, financial administration has as its goal the maximization of shareholder value , and for this it studies business financial decisions based on a short and long term, in pursuit of a strategy that allows improving the management of cash, stocks and dividends.
Corporate finance is usually associated with investment banking , dedicated to meeting the capital needs of different companies. This is why financial management has the power to revive, grow and even acquire businesses .
In the corporate world that emerged as a result of the Industrial Revolution and capitalism , financial management became an essential part of economics and business and became a separate area of study in the early 20th century .
Until then, knowledge on the subject was limited to the recording of capital market procedures , without analytical methods and understanding and dissemination mechanisms that made corporate financial history a theoretical area.
The very purpose of financial administration is to understand, improve and enhance the management that companies make of their economic assets, through a series of basic concepts and recording and analysis mechanisms, to build a better management of assets and liabilities , as well as better planning over time.
It is an area of study very closely linked to the disciplines of administration and the business world, such as accounting, law , business architecture and others, from which it extracts tools and to which it provides a missing perspective.
When we refer to business relations, the correct management of corporate finances becomes a central issue in the destiny of the subject.
Investments are the heart of a country's economic growth , since new projects generate employment, wealth and mobilize both public and private economic machinery.
This means that capital management and proper project planning is vital for companies not only to achieve their short- and medium-term goals , but also to position themselves for the future in the financial field.
Broadly speaking, financial management deals with the valuation of assets and the analysis of financial decisions that tend to create value (which must be the direct objective of the company's management).
However, this is addressed from different possible angles such as corporate legal structure, financial and investment models , mergers and acquisitions, corporate social responsibility, tax management, investment banking, financial leverage, restructuring. companies and, of course, the very important issue of risk and benefit.
These two concepts are central in financial management and are defined as the possibility that the final result differs from what was initially expected (risk) and some unfavorable event occurs, and the possibility that the final results provide expected or unexpected growth and profits (profit). ).
Without risk there is no benefit, that is why it is often said that "who does not bet does not win" and that investment is the spirit of corporate growth.
Likewise, there are three types of risk:
Other important concepts in the financial world have to do with:
Financial managers are those in charge in corporations of carrying out decisions pertaining to financial administration.
It is a vital role in the success of companies and commercial operations since their decisions can mean an increase in the value of shareholders , that is, business growth or, on the contrary, its decrease.
The best financial managers are those concerned with dividends per share and not exclusively with total earnings.
The usual tasks of a financial manager are:
Short-term decisions and techniques, from the perspective of corporate finance, have to do with the necessary balance between assets and liabilities to provide the business structure with stability and survival.
Instead, the long-term decisions are those that have to do with capital investment and growth: which projects should receive financing , whether they should receive it in equity or from debt (leverage), and when and how to pay dividends. to shareholders.
Three sets of decisions make up the corporate finances of a company:
Times of technological change such as the one that began at the end of the 20th century represent a paradigm of challenges for financial management, given that the business landscape must adapt to a human universe that is constantly changing and in demand for the new.
Investments in the digital world, in new technologies or in ambitious industrial projects require the best strategic use of the company's finances, and that means having more capable financial managers.
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