Financial Management Articles, Definitions, Journal, Pdf

Financial Management - A. Definition Financial Management 

Financial management is the management of financial functions. Financial functions include how to obtain funding (raising of funds) and how to use these funds (allocation of funds). Financial managers are concerned with the determination of total assets worth of investments in various assets and the selection of sources of funds to finance these assets.

Financial managers are concerned with the determination of total assets worth of investments in various assets and the selection of sources of funds to finance those assets. To finance the funding requirements, financial managers can deliver it from sources that originate from outside the company and can also come from within the company. Sources from outside the company comes from capital markets, namely the meeting between the parties need funding and those who can provide funds. Funds from capital markets may be in the form of debt (bonds) or equity (shares). Sources from within the company comes from allowance company profits (retained earnings), backup, and depreciation.


Once funding is obtained, these funds should be used to finance company operations. Funds will be embedded in a variety of real property companies.

Some definitions:

Financial management is the activity of the owner and management company to obtain capital resources and use them as cheap-cheap as effective, as efficient, productive as possible to make a profit.

Financial management can be defined from the duties and responsibilities of financial manager. Although the duties and responsibilities vary in each company, the main tasks of financial management include the following: decisions about investment, financing activities and dividends of a company (Weston and Copeland, 1992: 2)


B. Financial Management Functions 

Financial management can be defined from the duties and responsibilities of financial manager. The principal tasks of financial management, among others, include decisions about investments, financing business activities and the distribution of dividends of a company, thus the task of financial managers is to plan to maximize firm value.

Another important activity that must be done regarding the financial manager of four (4) aspects, namely:

1. First, that is in the planning and forecasting, where financial managers must work closely with other managers who share responsibility for general corporate planning.
2. Second, financial managers must focus on various investment and financing decisions, and all things related to it.
3. Third, the financial manager should work closely with other managers in the company so the company can operate as efficiently as possible
4. Fourth, regarding the use of money market and capital markets, finance manager to connect companies with the financial markets, where funds can be acquired and securities can be traded companies.

Of the four aspects of it can be concluded that the main tasks of the financial manager associated with the investment and financing decisions. In carrying out its functions, duties of financial managers are directly related to the company and the principal's decision affects the value of the company.



C. Decisions and Responsibilities of Financial Managers 

Financial managers have a tremendous responsibility for what he had done. There are also financial decisions which are the responsibility of financial managers are grouped into three (3) types:

1. Investment decisions (investment decision), Concerning the problem of selection of the desired investment from a group of opportunities that exist, choose one or more alternatives are considered the most profitable investments.
2. Spending decisions (financing decision), Concerning the problem of selection of various forms of financial resources available to invest, choose one or more alternative expenditures that give rise to the cheapest cost.
3. Decisions dividend (dividend decision) or dividend policy, Concerning the problem of determining the percentage of the profits to be paid as cash dividends to shareholders, the stability of dividend payments, distribution of stock dividends and repurchase shares.

Decisions must be taken within the framework of goals that should be used by companies that maximize firm value. Firm value is the price that is formed if the company is sold. If companies "go public" then the value of this company should be reflected by the company's stock price. With increasing corporate value, then the owner of the company becomes more prosperous so that they become happier.

Corporate activity in terms of financial management is the task of financial managers. His job, among others, are as follows:

1. Acquisition of funds at reasonable cost.
2. Effective and efficient use of funds
3. Analysis of financial statements
4. Internal and external environmental analysis associated with routine and special decisions.

D. The position of Finance Manager in Corporate Organizational Structure 

Inside a large finance company led by a financial manager (chief financial manager). Financial managers or finance directors are often called to report directly to chief financial officer or president. 

While in the finance department of a company divided into several sections / divisions are owned by one to the division include: 

1. Budget Division, is responsible for preparing and improving operating bugdet (operating bugdet)
2. Division of capital budgeting (capital budgeting) is responsible for preparing capital expenditure analysis
3. Financial planning division, which is responsible for taking an alternative long-term funding needs
4. Short-term financial planning division, responsible for short-term funding needs, as well as short-term investments in marketable securities (marketable securities)
5. Credit Division, is responsible for determining the credit will be given to customers, besides this division is also responsible for negotiations with the creditors (financial institutions and non banking Banks)
6. Division hubungaan society (human relations), responsible for the formation of image / communications between companies, shareholders, investors and financial community in general.

E. Financial Management By Objectives Company 

Basically the goal of financial management (The Main Objective of Financial Management) is to maximize the value of the company or to maximize shareholder wealth, rather than maximizing profit. Meaning of profit maximization, is to ignore social responsibility, ignoring the risk, and short-term oriented. While the meaning of maximizing shareholder wealth or value of the company as follows: 

1. Means to maximize the present value (present value) of all future profits to be received by the owner of the company.
2. Means more emphasis on flow rather than net income results in terms of accounting.

However, behind the goal is still a conflict between business owners with providers of funds for creditors. If the company running smoothly, then the company's share value will increase, while the value of corporate debt in the form of bonds is not affected at all. So it can be concluded that the value of stock ownership can be an appropriate index to measure the level of corporate efektifitias. Based on that reason, the financial management objectives expressed in terms of maximizing the value of the stock ownership of companies, or maximize their stock price. Goal to maximize the stock price does not mean that managers should seek increased value of the shares at the expense of bondholders. 

Maximizing shareholder wealth / corporate owners do not deny the existence of social objectives and social obligations. Social responsibility is an important aspect of corporate objectives, that is: 

1. The success of the company will maximize the value contributed significantly to the overall social environment. This means that if the financial management leads to the maximization of share price, it is necessary to good management and efficient in accordance with consumer demand.
2. Influence (impact) the external environment such as pollution, occupational safety, product safety must also be taken into account. Where successful company always puts the efficiency and innovation as a priority, resulting in new products, new technology and the expansion of employment.
3. Sensitivity to external factors is one important requirement that the company can still maintain the company's survival. Outside factors such as environmental pollution, product safety assurance and safety becomes more important to consider. Fluctuations at all levels of business activity and the changes that occur in conditions of financial markets is an important aspect of the external environment.
4. Companies must be able to maximize shareholder wealth in legal and social constraints and are responsible for environmental change. Cooperation between industry and government is needed to create the rules that govern corporate behavior, and vice versa in complying with these regulations.

The company's goal is basically to maximize enterprise value by technical considerations as follows: 

1. Maximize the value significantly broader than profit maximization, because maximizing value means considering the influence of time on value for money
2. Maximizing value means considering the various risks to the company's revenue stream.
3. Quality of the expected flow of funds received in the future may vary.

Value is something that is upheld and respected. In case the company is embodied in the calculation of net profit or net operating oprasional profit after tax, commonly called NOPAT. The company can be said to have maximum value if NOPAT is greater than the cost of capital used to earn such profits. For example the company has a capital of USD 1000, capital costs are taken into account 10% per year, Profit Rp150 oprasi. tax of 20%. Company value for: 

[Operating Income (1 - Tax) - (Capital Cost x Capital)] 

= ------------------------------------------------- ----- 

Cost of Capital 

[Rp 150 (1 - 0.20) - (0.10 x USD 1000)] 

= ---------------------------------------- 

Rp 1200 

= 0.10 

Based on the above protection, the company has additional capital value (or value invetasinya) Rp 1000, while the enterprise value based on capitalization oprasi net profit of Rp 1200. Management should try to make maximum possible value of the company, meaning he should be able to obtain maximum operating profit to capital employed as small as possible. 

F. Environmental Finance 

1. Environmental aspects that are important to understand the financial managers are the financial sector in the economy, which consists of financial markets (financial markets), financial institutions (financial institutions) and financial instruments (financial instruments). 
2. Financial markets, suggesting a meeting between demand and supply will be financial assets (financial assets) or often referred to as sekurities. Sekurities is a piece of paper (letter) which has a market value because it must show the company claims on real assets (eg machinery, plant, raw materials, merchandise, trademark, etc.).
3. Financial institution is an institution that acts as intermediary institutions (financial intermediation) to bring the unit surplus to deficit units. Examples of financial institutions in the monetary system is the central bank, Bank creator of demand deposits / banks. Financial institutions and beyond the monetary system (not the creator of the bank demand deposits / BPR), financial institutions, insurance companies, pension funds, capital market institutions, etc..

Financial Instruments, for example, is money, stock, debt, and securities in the money market and other capital markets.

G. Financial Management Activities 

1. Concept Capital 

Before discussing more about the activities in financial management, needs to be understood in advance of the Capital Concept. 

In economics, the term "capital" (capital) is a concept that understanding varies, depending on the context of its use and flow of thought (school of thought) is adopted. Historically the concept of capital is also experiencing changes / developments (see Snavely, in the Encyclopedia Americana 1980:595): 

In the 16th century and 17 the term "capital" is used to refer to, or (a) the stock of money will be used to purchase the physical commodity is then sold for profit, or (b) stock of the commodity itself. At that time the term "stock" and the term "capital" is often used synonymously. British trading companies established in that period on the basis of such shares, known as the "Join Stock Companies" or "Capital Stock Companies." 

Adam Smith in the Wealth of Nations (1776), also uses the term "capital" and "circulating capital". This distinction is based on the criteria the extent to which an element of capital is consumed within a certain period (eg one year). If an element of capital within a specified period only partially consumed so that only a (small) value to decrease, then the element is called "fixed capital" (eg machines, buildings, etc.). But if elements of the capital consumed in total, then it is called "circulating capital" (eg labor, raw materials and production facilities). The distinction of this kind (which is also still commonly used until now), criticism of Marx (see Bottomore 1983:60-63). 

John Stuart Mill in Principles of Political Economy (1848) used the term "capital" to mean: (1) physical goods used to produce other goods, and (2) the funds available to hire workers. 

At the end of the 19th century, capital in the sense of physical goods used to produce other goods, is seen as one among the four major factors of production (the other three are land, labor and organizational or management). The neo-classical economists also use this view (for example, Alfred Marshall in the Principles of Economies 1890). 

Now, the "capital" as an economic concept used in different contexts. In the simplest formulation, for example Mubyarto provide a definition: "capital" are goods or money, which together factors of production land and labor produce new goods "(1973:94). In a broader sense, and in the tradition of non-Marxian economic outlook in general, "capital" refers to "assets" owned by a person as wealth (wealth) that are not immediately consumed but rather, or stored ("saving" is a "potential capital" ), or used to produce goods / service (investment). Thus, capital can be tangible goods and money. However, not every amount of money can be called capital. Some money becomes capital when it is planted or invested to ensure the existence of a "return" (rate of return). In this sense also refers to the investment of capital itself, which may include financial instruments such as deposits, stocks, or share certificate reflecting the rights to the means of production, or it can also be the means of physical production. Returns may be a payment of interest, or claim for a benefit. Capital goods (capital goods), includes "durable (fixed) capital" in the form of factory building, machinery, transportation equipment, ease of distribution, and other items used to produce goods / services; and "no- durable "(circulating) capital, in the form of finished or semi-finished goods which are in the process to be processed into finished goods. There is also the use of the term "capital" to refer to a more specific meaning, such as "social capital" and "human capital". The first term refers to a type of capital available to the public interest, such as hospitals, building schools, roads and so on, while the latter term refers to the human factors that are inherent productive capacity and skills covered by the human factor. Provide education for example, referred to as an investment in "human capital" (Schultz 1961, according to Mubyarto 1973:98). 

The non-Marxian economists, any school that was followed-on-pengerian generally follows the definition above, whereas Marx uses the term "capital" to refer to another concept altogether. "Capital" is not goods, melaikan relations (of production) which manifest themselves as social goods. Indeed, talking about the capital mean talking about "how to make money", but the asset that "makes" money it embodies a special relationship between the owner with the owner who is not in such a way that not only that money "created", but also that the relations of ownership person who delivered the process is continuously preserved (Bottmore 1983:60). 

Thus, the "capital" is an abstract concept that its manifestations can be either goods or money. Therefore, it is a complex category, which is not sufficiently explained only by one definition. Marx's conceptualization of "capital" may be described simply in the following six basic grains (Bottomore 1983:60-63): 

First, the transformation of money into capital goes through a certain process, consists of two series of transactions in the atmosphere circulation, namely: (1) sell the commodity (K) and money earned (U) is used to buy other commodities, and (2) purchase commodities for then sold again (In the chart: KUK; and Uku). 

Second, in a series of transactions that factor "value" is important, because especially in uku, the transaction is only meaningful if the amount of money at the end point becomes greater than the sum of origin (if not, yes how the benefits can be obtained). If the exchange is an exchange of equal value, how additional money could be obtained? Conversely, if not equal, then the value itself is not created. Marx answers this question by applying the "use-values". Value in order to have a nature "created" additional value or "surplus value". Commodities that have use-values ​​like that is labor. 

Third, Kuk path, typically refers to wage labor transactions. Workers sell the energy to earn some money (in the form of wages), which in turn used to purchase other goods (food and other needs) are needed to dapay to "reproductive" labor. Therefore in this transaction, the money did not act as a capital (Compare with the Mill above). However, if viewed from the direction of the transaction is reversed, ie from the penguah, and "value" is input, then the money in sin dapay referred to as elements of capital which Marx referred to as variable capital (VC) (see point six at the rear). But viewed from the pengupah VC. 

Fourth, on the contrary, Brazilians uku line transactions include the purchase of production facilities which are then processed into products that kmudian sold to raise more money. Thus, in contrast to wages spent on goods consumed and then disappeared altogether, in line uku this money is only "advance" to then reappear in greater numbers. This is where the money is being transformed into capital in a historical process when labor becomes komodits-here associated with the concept of freedom double meaning). 

Fifth, therefore, capital in Marx's concept is "value which swells itself" (self-expanding value) or "value in motion" (value in motion). 

Sixth, there is another pair of Marx's concept that its use is often confused with the concept of fixed and circulating capital from non-Marxian economics, namely the so-called constant capital (CC) and variable capital (VC). Both couples were totally different meaning. CC is part of the issued capital (advance) to be converted into production facilities in the production process does not change the value. That is, the "value" means of production was kept in the "value" products, a process of transfer of "value" through the work process. The production process is the transformation of "use-values". Use-values ​​of goods (inputs) are processed, consumed. But the "value" goods themselves transferred into new products. Similarly, the CC. VC is part of the issued capital to be converted into labor in the production process of its activity leads to two directions, namely the production of value-equivalent in itself, and on the other hand produce "value-added", which amount bragam according to circumstances. 

Thus, in Marx's concept, the elements of capital that can be differentiated according to two criteria. First, the criteria of the work process, there are objective factors of production facilities, and there are subjective factors of labor. Second, in terms of determining the value (valorization), there are constant capital and variable capital. 

Thus concluded that the capital is the debt / liabilities to be paid by the company to the owner and the debt is an obligation that must be paid to other parties so that Assets = equity + debt obligations and rights = 

2. Financial Activities 

1. FINANCING ACTIVITIES (Financing Activity) 

Aktivitas pembiayaan ialah kegiatan pemilik dan manajemen perusahaan untuk mencari sumber modal ( sumber eksternal dan internal ) untuk membiayai kegiatan bisnis. 

A.Sumber eksternal 

Modal Pemilik atau modal sendiri ( Owner Capital atau Owner Equity ). Atau modal saham ( Capital Stock ) yang terdiri dari : Saham Istimewa ( Preferred Stock ) dan Saham Biasa ( Common Stock ).

Utang ( Debt ), Utang Jangka Pendek ( Short-term Debt ) dan Utang Jangka Panjang ( Long-term Debt ).

Lain-lain, misalnya hibah.

B. Sumber Internal : 

Laba Ditahan ( Retained Earning )

Penyusutan, amortisasi, dan Deplesi ( Depreciation, Amortization, dan Deplention )

Lain-lain, misalnya penjualan harta tetap yang tidak produktif.

2. Financial Activities 

1. FINANCING ACTIVITIES (Financing Activity) 

Financing activities is the activities of owners and management companies to find sources of capital (external and internal sources) to finance business activities. 

A. External Resources 

1. The owner of capital or equity capital (Owner or Owner Equity Capital). Or share capital (Capital Stock) which consists of: Special Stock (Preferred Stock) and Common Shares (Common Stock).
2. Debt (Debt), Short-Term Debt (Short-term Debt) and Long-Term Debt (Long-term Debt).
3. Others, such as grants.

B. Internal sources: 

1. Retained earnings (Retained Earning)
2. Depreciation, amortization, and Depletion (Depreciation, Amortization, and Deplention)
3. Others, such as the sale of fixed assets that are not productive.

2. Investment Assets (Investment activity) 

investment activity is the activity of the use of funds based on the idea of ​​the maximum and the smallest risk. Activities include: 

1. Working Capital (Working Capital) or current assets (Current Assets)
2. Financial Assets (Finanncial assets) comprising: an investment in shares (stock) and Bond (Bond)
3. Fixed Assets (Real Assets) consisting of: Land, buildings, equipment.
4. Intangible property (intangible assets) consist of: Patent Rights, Rights for Forest Management, Management of Mining Rights, Goodwill.

3. Business Activity (Business Activity) 

Business activity is an activity for profit through the sale of goods or services of the effectiveness of cost efficiencies that will produces a rich profit. Activity can be seen from the report Income, which consists of elements: 

1. Revenue (sales or revenue) 
2. Expenses (Expenses) 
3. Profit-Loss (Profit-Loss) 

H. FINANCIAL STATEMENT ANALYSIS 

FACTORS NOT REFLECT THE INCOME OF THE COMPANY FINANCIAL CONDITION 

In assessing the achievement of results / achievements of the company that looks at the company's financial statements, corporate leaders are usually profit-oriented company. Though the financial statements may be reflected various aspects / potential problems that may soon be overcome. 

Companies with small profits, but adequate financial conditions, the relative would be better than companies with big profits, but the poor financial condition. 

Analysis of Financial Statements The Company's success mirrors danPedoman Corporate Planning 

Financial Statement Analysis is a tool of information to assist management in making decisions. For management, it is necessary in order to know the efficiency of resource utilization. For bankers, this is very important in order to award credit good credit who saw the short-term liquidity or long-term loan company that analyzes the cash flow. Owners also tried to see the profitability of its business and is also important to know the return on the investment made 

Likewise, potential investors will try to analyze the "trend" of sales, as well as business continuity and profitability of the commodity to be invested. Financial Management