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Financial management

In the past, financial management was not a major concern for a business. A company used to establish relations with a local bank. The bank handled the financing and the company took care of producing and selling.

Today only few firms operate in this way. Usually businesses have managers who work with the banks. They negotiate transactions, compare rates among competing financial institutions. Financial management begins with the creation of a financial plan. The plan includes timing and amount of funds and the inflow and outflow of money.

Financial management focuses on ratios, equities and debts. It is useful for portfolio management, distribution of dividend, capital raising, hedging and looking after fluctuations in foreign currency and product cycles. Financial managers are the people who will do research and based on the research, decide what sort of capital to obtain in order to fund the company's assets as well as maximizing the value of the firm for all the stakeholders. It also refers to the efficient and effective management of money (funds) in such a manner as to accomplish the objectives of the organization. It is the specialized function directly associated with the top management.

The term typically applies to an organization or company's financial strategy, while personal finance or financial life management refers to an individual's management strategy. It includes how to raise the capital and how to allocate capital, i.e. capital budgeting. Not only for long term budgeting, but also how to allocate the short term resources like current liabilities. It also deals with the dividend policies of the share holders.

Profit maximization happens when marginal cost is equal to marginal revenue. This is the main objective of Financial Management. Wealth maximization means maximization of shareholders' wealth. It is an advanced goal compared to profit maximization. Survival of company is an important consideration when the financial manager makes any financial decisions. One incorrect decision may lead company to be bankrupt. Maintaining proper cash flow is a short run objective of financial management. It is necessary for operations to pay the day-to-day expenses e.g. raw material, electricity bills, wages, rent etc. A good cash flow ensures the survival of company. Minimization on capital cost in financial management can help operations gain more profit.

The financial manager develops and controls the financial plan. He also forecasts the economic conditions, the company's revenues, expenses and profits. The financial manager's job starts and ends with the company's objectives. He reviews them and determines the funding they require. The financial manager compares the expenses involved to the expected revenues. It helps him to predict cash flow. The available cash consists of beginning cash plus customer payments and funds from financing. The financial manager plans a strategy to make the ending cash positive. If cash outflow exceeds cash inflow, the company will run out of cash. The solution is to reduce outflows. The financial manager can trim expenses or ask the customers to pay Easter. The financial manager also chooses financing techniques: short-term financing and long term financing. At the end of the fiscal year the financial manager reviews the company's financial status and plans the next year's financial strategy.

For new enterprises, it is important to make a good estimation on costs, sales. There are fixed and current sides of assets balance sheet. Fixed assets refer to assets that cannot be converted into cash easily, like plant, property, equipment etc. It is not easy for start ups to forecast the current asset, because there are changes in receivables and payables.

Text D

New words and word combination:

1) a brand – торговая марка; 2) a consumer – потребитель; 3) to make smb. feel – заставлять чувствовать; 4) a competitor – конкурент; 5) to achieve a success – добиться успеха; 6) a manager – управляющий; 7) quality – качество; 8) to target – достигнуть цели; 9) market – рынок; 10) to keep the brand – сохранить; 11) to appeal to – обращаться, взывать; 12) engage – вовлекать; 13) consumer – потребитель; 14) promotion – продвижение; 15) distribution – распространение; 16) revenue – доход; 17) competition – конкуренция.