Understanding the Importance of Corporate Finance and Its Functions

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Corporate financeCorporate finance refers to the field of finance that deals with providing money to a business and the resources that provide it. These sources provide capital to companies to pay for structural repairs, expansions, and other value-add projects and companies.

The financial goal of the company is to maximize shareholder value. There are many methods that companies can use to maximize shareholder value. So what is the financial understanding of the company? Let’s take a look at the following review.

What is Corporate Finance?

Understanding the Importance of Corporate Finance and Its Functions

Corporate finance – Corporate finance refers to the field of finance that deals with providing money to a business and the resources that provide it. These sources provide capital to companies to pay for structural repairs, expansions, and other value-add projects and companies.

The financial goal of the company is to maximize shareholder value. There are many methods that companies can use to maximize shareholder value. So what is the financial understanding of the company? Let’s take a look at the following review.

What is Corporate Finance?

Corporate Financial Management Goals to Know

Financial management is the most important part of the company. Usually, the part that has an important role must have a purpose that will be useful for the company. Well, to be clear, here are some of the company’s financial management goals:

Maintaining the Company’s Cash Flow

The first benefit of financial management is maintaining the company’s cash flow. Cash flow is the entry and exit of cash in the company that must be monitor so as not to occur unwant expenses.

If the cash flow in the company is not controll, it can cause losses. Usually, cash is use to pay employees, buy raw materials or logistics need, and other expenses.

Maximizing Company Finances

In addition to overseeing finances, financial management at the company also aims to maximize the company’s finances. That is any fund budget activity that does not benefit the company can be replace with more profitable activities.

Well, proper financial planning can help maximize the company’s profits in the long run. When the company’s budget is appropriate, then the efficiency of the company’s funds will continue to increase.

Preparing the Capital Structure

The goal of financial management in the company is to plan the capital structure in order to balance the company’s budget with loan funds. Proper capital planning can help companies minimize capital wisely.

Optimizing Company Continuity

If the financial manager can make the right decision, then this can reduce the operational risk of the company which is detrimental. Another no less important part of a financial manager’s job is the expert reading of the stock market. Providing profit sharing to shareholders will increase their confidence to continue to invest in the company so that the company’s continuity runs optimally.

Therefore, proper financial management can make the company survive. Conversely, if financial management is not managed properly, it can cause the company to lose and go bankrupt.

Principles of Corporate Financial Management that Must Be Applied

In its Application, a Financial Manager Has Several Principles, Among Others:

Accountability

Accountability is an important moral obligation in a company. That is, financial managers in the company must be able to account for their duties in managing the company’s finances. So that all records, management, and other activities related to the company’s finances are really on target and there is no gap to manipulate data.

Consistency

If the financial system in the company is relatively stable, then the company must implement the system consistently. Conversely, if there is an unstable use of funds, then the company must immediately replace the financial system.

Transparency

Being transparent or open is an important principle in managing finances. In order for this principle to work correctly, usually, the company will provide information about the company’s financial activities to every interested manager.

Why Is Financial Management in a Company So Important?

There are many benefits for you when implementing good financial management. Here are some of them:

Knowing the Capital That Has Been Issued

By practicing good financial management, it will allow you to know exactly the amount of funds spent on asset purchases. Assets here mean capital that can later generate income.

In issuing funds for capital expenditures, you need to balance the amount of income that will later be generated by the capital. If you can manage your spending funds well, your financial flows will become healthier so there is no need to make loans to other parties. You can also focus on assets that can provide more income for the company.

Can Manage Cash

By having good financial management, cash flow can be managed more regularly. You will not bother thinking about whether you have funds to pay bills such as electricity, water, telephone, employee salaries, to insurance.

One useful tip you can admit is to shorten the amount of time you give customers to pay or negotiate due dates with vendors. You need discipline in doing financial management. The reason is, if you are not successful in managing cash flow effectively, you may be able to default and the company’s operations become disrupt.

Lowering Costs

One of the main tasks of having financial management is to keep costs as low as possible. There are several things you can do such as asking vendors to lower prices because they have been subscribe for a long time, reducing electricity and water use, or buying massive supplies.

If you cannot manage expenses well, another thing you can do is to be able to significantly boost sales figures so that expenses can be patch.

Tax Planning

Another thing that can be done by having financial management is tax planning. With financial management, you can estimate the estimate amount of tax that must be issue. You can also calm down because you already have your own post, namely for taxes, so there is no need to worry about paying taxes late.

As is known, late paying taxes will be subject to fines so it is necessary to allocate additional funds to pay the fine. Because you already have financial management, your company’s tax planning will run smoothly.

Functions of Financial Management in the Company

Not only goals, financial management in the company also has an important function. Well, these functions will later help the financial manager carry out his duties properly. Here are some functions of financial management in the company:

Planning

Planning is the first function of financial management. This first function regulates several things including cash, planning the company’s cash flow, and calculating the company’s profit and loss.

With planning, the company can also prepare funds that will be allocat in accordance with the planning that has been determin by the company. Automatically there will be no fund budget that deviates or does not fit the needs of the company.

Budgeting

Budget funds which can also be call budgeting is an important activity that must be done for the needs of the company. Usually, the allocation of these funds is done to a minimum with the existing fund budget.

All the needs of the company must already have a special funding budget. Budgeting also aims to make it easier to control the company’s financial activities. In short, this budgeting is an activity of separating the budget for each company’s needs.

Controlling

Control or evaluation of the company’s finances is the next function in financial management. The presence of evaluation is need to improve the financial system of the company.

If the company does not evaluate the problematic financial system, as a result, the company’s financial condition continues to decline and cause losses to bankruptcy.

Auditing or Inspection

In addition to evaluation, financial management also serves to audit or check the company’s finances so that irregularities do not occur. This financial examination must be in accordance with accounting rules.

This is why choosing a financial manager should be appropriate. Because this whole job requires good accounting skills. The more professional a financial manager is, the fewer mistakes there are. In addition to flying hours, the personality of the financial manager should also be consider.

Reporting

The last function is reporting or financial statements. Reporting is done openly and transparently. Well, this financial statement aims to provide information about the financial condition of the company.

If there are no financial statements in the company, then this could be a loophole for irresponsible individuals to misuse the company’s budget later. Therefore, financial statements are an important part of the company that must be done openly or transparently to avoid things that are not desire.

Also, Read Financial Advisor:

Do you already know about company finances?

Corporate finance is the field of finance that deals with the source of funding, the capital structure of the company, the actions that managers take to increase the value of the company to shareholders, and the tools and analysis use to allocate financial resources. Thus the article I can make about the company’s finances may be useful, thank you.

 

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