Financial Management The main goal is to maximize the value of the company or provide added value to the assets owned by shareholders.
Scope of Financial Management consists of:
- Funding decisions, including management policies in search of company funds, for example, published a number of policies and policy bonds short and long-term debt the company sourced from internal and external companies.
- Investment decisions, capital investment policy of the company to assets or 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 activity to invest in various assets.
- Decisions Asset Management, assets management policies efficiently to achieve corporate objectives.
- Planning or Financial Planning, Cash Flow Planning covers and Income.
- Budgeting or budget, planning and budget allocation admission cost efficient manner and maximize the funds held.
- Controlling or Financial Control, evaluation and improvement of finances and financial systems.
- Auditing or Audit, internal audit for the financial companies to comply with existing rules and accounting standards to prevent deviation.
- Reporting or Financial Reporting, provides report information about the company's financial condition and ratio analysis of financial statements.
● Obtaining funding at reasonable cost,
● effective and efficient use of funds,
● Analysis of the financial statements,
● Analysis of the internal and external environment associated with routine decisions.
Based on these objectives, financial management has several objectives:
- Maximizing the value of the company,
- Maintaining relations with the capital market and the money market, and the nature of the company.
- Maximizing the value of the company, meaning that management should generate greater profits than the cost of capital employed.
- Social responsibility, meaning that the search for profits, management must not damage the natural environment, social, and cultural.
- Activity use of funds, the activity to invest in various assets.
- Fund acquisition activities, ie activities to obtain financial resources, both from internal funding sources as well as sources of external funding.
- Asset management activities, which after the funds obtained and allocated in the form of assets, funds must be managed efficiently
The first step in the analysis of sources and uses of funds is a report compiled on the basis of changes in the balance sheet for two times two. The report describes the changing of each of these elements reflecting the source or use of funds.
In general, financial ratios are calculated can be grouped into six types:
1. Liquidity Ratio, this ratio to measure a company's ability to meet its short-term financial obligations.
2. Leverage Ratio, this ratio is used to measure how much funds that are supplied by the owner of the company in proportion to the funds obtained from the company's creditors.
3. Activity Ratio, this ratio is used to measure the effectiveness of management in the use of its resources. All the activity ratio involves a comparison between the level of sales and investments in various types of assets.
4. Profitability ratio, this ratio is used to measure the effectiveness of management as seen from the profit generated on sales and investment companies.
5. Growth Ratio, this ratio is used to measure how well the company maintain its economic position of economic and industrial growth.
6. Valuation Ratios This ratio is a measure of the company's most complete achievement because this ratio reflects the combined effect of the risk ratio with the ratio of the return.
ordinary capital is defined assortment, terms of capital in corporate spending can be divided into two, namely: capital active and passive capital. Active capital is the wealth or the use of funds, while passive capital is a source of funds.
Finance Manager
Financial manager is someone who has the right to take a very important decision in the field of investment and corporate spending. The financial manager is also responsible for finance in a company. The role of a financial manager that processes the input into output. By conducting Planning, Organizing, Leading and Controlling through a role that must be made between the personal (interpersonal relationships) were very helpful duty work, provision of information to interested parties to work mainly information regarding the policy of the company (informational role), and the role of the third to do a manager is how managers implement a decision in the activities of the company (decesion role).The responsibility of a financial manager, namely: forecasting and financial planning big decision in the investment and financing coordinating and controlling interaction with the capital markets
Capital Budgeting is the use of funds or capital as a return of more than one year (long term). In other words related to Investment Decision on fixed assets. Capital Budgeting or capital budgeting requires more detailed calculations and carefully because the refund of more than 1 year.
Sign Cash Flow Cash or cash the remaining balance of the cash inflows less cash outflows stemming from past periods. Net cash flow (net cash flow) refers to the cash inflows less cash outflows in the current period.
Average Return on Investment Method (Method of Investment Returns Average) method is also called a method or Financial Statement Accounting method.
Formula. : Average Average returns Investment Returns = Profit After Tax = ...% Investment Investment Criteria Average Rating:
1. An investment would be acceptable if the rate of return of investment to meet the limits set by the manager.
2. If the Decision not have limits investment return rates, then from some of the proposed investments are selected that provide the greatest level of return.
Method payback period method is to try to measure how quickly the investment can be returned, therefore the base used is cash flow, not profits. But the main problem is the difficulty of determining the maximum payback period required, to be used as comparable figures. In practice, that is used is the payback generally of similar companies. Another disadvantage of this method is the waiver of the time value of money and its negligible cash flow after payback period. The first weakness eventually resolved by the Discounted Cash Flow method.
A project for example, with an investment of 20 million, with an economical 6 years of age, have a cash flow of 6.5 million per year. B projects with an investment of 20 million, economical age of 10 years, the cash flow of 6 million per year. The interest rate that is considered relevant is 10%. Then in less than four years, the investment will return A, while B takes over 4 years. However, the total investment will provide additional cash and more (due to age longer economical). So with this DCF only solve the problem of the neglect of the value of time, but have not been able to overcome the problem of the neglect of the cash flows after the payback period. However, this method still popularly used, but only as a complement any investment appraisal, especially for companies facing liquidity problems or short-term financial fluency.
Methods presen net value difference of money received and money spent by taking into account the time value of money. Basically the interest rate is the interest rate at the time the investment decision was separate from spending decisions, or the start time of the investment decision to associate with spending decisions (this link only affects the interest rate, not the cash flow).
Profibality index method this method calculates the ratio between the present value of net cash receipts in the future with the present value of the investment. If the PI is greater than one, it is considered advantageous.
Internal rate of return method in the IRR method, calculated the interest rate that equates the present value of the investment with the present value of net cash receipts in the future. If the interest rate is greater than the relevant interest rate (as required), it is considered profitable investment.
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