Understanding of Financial Management

Financial management is an activity of planning, budgeting, checking, managing, controlling, searching

and storing funds owned by an organization or company.

Management activities

Financial management relates to 3 activities, namely:

1. Fund use activities, namely activities to invest funds in various assets.

2. Funds acquisition activities, namely activities to obtain funding sources, both from internal funding
sources and external funding sources.

3. Asset management activities, that is, after funds are obtained and allocated in the form of assets, funds
must be managed as efficiently as possible.

preliminary

A financial manager in a company must know how to manage all elements and aspects of finance, this
must be done because finance is one of the important functions in achieving company goals.

The element of financial management must be known by a manager. For example, a financial manager
does not know anything that is an element of financial management, there will be difficulties in running a
company.

Therefore, a financial manager must be able to know all the activities of financial management, especially
analyzing the source of funds and their use to realize the maximum profit for the company. A financial
manager must understand the external and internal circulation of money.

Financial Management Functions

The following is a brief explanation of the functions of Financial Management:

1. Financial Planning, making plans for income and expenditure and other activities for a certain period.

2. Financial Budgeting, follow-up to financial planning by making detailed expenditures and revenues.

3. Financial Management, using company funds to maximize existing funds in various ways.

4. Search for finance, search for and exploit existing sources of funds for operational activities of the
company.

5. Financial Storage, collecting company funds and storing and securing these funds.
6. Financial Control, evaluating and improving the financial and financial systems of the company.

7. Financial Examination, conduct internal audits of existing company finances so that no irregularities
occur.

8. Financial reporting, providing information about the company's financial condition as well as
evaluation material

When linked to this goal, the function of the financial manager includes the following:

a) Supervise costs

b) Establish pricing policy

c) Foresee future earnings

d) Measuring or exploring working capital costs

Financial Management Objectives

The purpose of Financial Management is to maximize the value of the company. Thus if one day the
company is sold, the price can be set as high as possible. A manager must also be able to suppress the
flow of money to avoid unwanted actions.

Analysis of Fund Sources and their Usage

Fund source analysis or fund analysis is very important for financial managers. This analysis is useful to
find out how funds are used and the origin of the funds. A report describing the source of funding and the
use of funds. The analytical tool that can be used to determine the condition and financial performance of
the company is ratio analysis and proportional.

The first step in the analysis of source and use of funds is a change report prepared on the basis of two
balance sheets for two times. The report illustrates the changes in each of these elements which reflect the
source or use of funds.

In general, the calculated financial ratios can be grouped into six types, namely:

1. Liquidity Ratio, this ratio is to measure the company's ability to meet its short-term financial
obligations.

2. Leverage Ratio, this ratio is used to measure how much funds are supplied by the company owner in
proportion to the funds obtained from the company's creditors.
3. Activity Ratio, this ratio is used to measure management effectiveness in using its resources. All
activity ratios involve a comparison between the level of sales and investment in various types of assets.

4. Profitability Ratio, this ratio is used to measure management effectiveness as seen from the profit
generated from the company's sales and investments.

5. Growth Ratio, this ratio is used to measure how well the company maintains its economic position in
economic and industrial growth.

6. Assessment Ratio, this ratio is the most complete measure of company achievement because this ratio
reflects the combination of the effect of the risk ratio with the return ratio.

Understanding Capital

The term "capital" b