Financial management is a field of business that deals with the monetization and tax decision-making that involves running a business enterprise. It will also introduce you to the tools used by financial experts to analyze and create those thinking steps that dictate a company’s financial direction. The primary goal of financial management is to improve shareholder value and broaden the company’s participation in its revenue generation processes. In principle, this is quite different from corporate finance, which studies the tax decisions of all organizations versus a single body. The concept and analysis of corporate finance applies equally to financial management issues supported by all business practices.
Financial management can be broken down into short-term and long-term decision-making logic and techniques. Decisions made in capital investment can be likened to long-term decisions because they are used to project investments; in many methods to use equity or debt to fund investment or return dividends to shareholders of a company. In contrast, short-term decision processes involved the current balance of acquired assets and discounted liabilities; focusing on how to manage company cash and inventory. Short-term loans and loans such as extending credit to customers are included.
Financial management is also linked to investment banking through corporate finance. The basic function of an investment bank is to review corporate tax requirements and provide the necessary capital that will meet identified needs. This is why financial management sectors refer to corporate finance and are associated with transactions involving the generation of capital for the development, acquisition and expansion of businesses.
Financial management and investment budget
Financial management has where to appropriate financial resources and balance emerging prospects (potential investment) in a methodology called capital budgeting. Generating the investment and allocating the necessary capital requires concluding to estimate a long-term value of the potential and agreeing on its function, its future cash flows, its size and if it is the right time to act on a project.
Generally speaking, the value of each prospect is estimated using a DCF valuation or discount cash flow valuation process and the plan that generates the maximum value, as measured by net present value or Subsequent VAN will be nominated for funding. This creates a liberal precondition to estimate the extent and control of the entire additional money flow that will be created once the project is funded.