he finance function responsible for this department is closely related to economics and accounting

The importance of the finance function largely depends on the size of the company.

In small companies finance function normally carries out the accounting department, as the company grows the importance of the finance function typically results in the creation of a separate finance department, an autonomous unit linked directly to company president through a financial manager.

The current financial management is seen as a form of applied economics that emphasizes theoretical concepts also taking accounting information, which is also another area of ​​applied economics.

Economics Vs Finance

The importance of economics in the development of financial environment and financial theory is best described in light of two broad areas of the economy:

Macroeconomics:

This branch deals with institutional and international environment in which a company operates, financial intermediaries, the structure of the banking system, the treasure of the nation, embodying the concepts of supply and demand relationships, as well as strategies to maximize profits and economic policies available to the government to confront and control the level of economic activity within the economy.

Microeconomics:

This is concerned with determining optimal operating strategies of companies and individuals, defines the activities that enable the company to achieve financial success and the results of the mix of production factors, optimal levels of sales and pricing strategies.

The knowledge economy is necessary to understand both the financial environment as the theory of decisions that are the rationale for financial management.

Indispensable

The finance function is necessary for the company to operate efficiently and effectively

Accounting Vs Finance

For many financial and accounting function of a business is virtually the same. Although there is a close relationship between these functions, the book should be seen as a necessary input of the finance function.

Towards treatment of fund management, the accountant whose main function is to produce and provide information to measure performance of the company he prepares the financial statements based on the premise that revenue is recognized as such at the time of the sale and expenses when incurred. The financial manager is responsible for maintaining the solvency of the company, obtaining the necessary cash flow to satisfy obligations and to acquire fixed assets and current needed to achieve the objectives of the company and instead of recognizing income and expenses as causes the counter, it’s recognizing in regard to cash inflows and outflows.

Faced with the decision-making, the obligations of a company’s financial officer of the counter differ in that it provides the bulk of its attention to the compilation and reporting of financial data, financial officer evaluated the reports of the counter, produce additional data and make decisions based on their analysis.

The company supplies counter easy data presentation regarding the operations of the company’s past, present and future. the financial manager uses this data in the way they are presented or after making certain adjustments and modifications as an important input in the process of making financial decisions.

This does not mean that the counter never make decisions or that the finance manager will never collect information.

FINANCIAL FUNCTION

The financial manager plays an important role in the company, its functions and its purpose can be assessed with respect to the basic financial statements. Its three primary functions are:

The analysis of financial data
The determination of the structure of corporate assets
Fixing the capital structure
The new business perspective and not based on the maximization of profits it has changed from a focus on wealth maximization

1. Financial Data Analysis

This function refers to the processing of financial data into a form that can be used to control the company’s financial position, to make plans for future financing, assess the need to increase production capacity and determine the additional funding required.

2. Determining the structure of corporate assets

The financial manager must define the composition, the type of assets that are in the balance of the company.

The term composition refers to the amount of money that include current and fixed assets.

Once you determine the composition, the financial manager should identify and try to maintain certain optimal levels of each type of current assets. It should also identify the best assets to be acquired. You should know that when fixed assets are obsolete and need to be replaced or modified.

The determination of the optimal structure of assets of a company is not a simple process, requiring insight and study of past and future operations of the company, as well as understanding the long-term goals.

3. Determination of capital structure

This function takes care of debt and equity in the Balance.

Should be two key decisions about the capital structure of the company.

First you must determine the most appropriate composition of short-term financing and long term, this is an important decision as it affects profitability and the overall liquidity of the company. another equally important issue is to identify sources of financing in the short or long term are better for the company at any given time.

Many of these decisions are of necessity, worse some require careful analysis of available alternatives, their costs and long-term implications.

Balance assessment by the financial manager reflects the overall financial situation of the company, in making this assessment, you must observe the operation of the company and find problem areas and areas that are susceptible of improvement.

In determining the assets of the company, it gives shape to the fixed asset and capital structure are being built around the debt and equity in the Balance.

You must also meet specific functions such as:

Evaluate and select customers
Assessing the company’s financial position
Acquisition of short-term financing
Purchase of fixed assets
Distribution of profits

The ultimate goal to be met by the financial manager should be to achieve the objectives of the owners of the company. Against this the finance function, the administrator must raise a viable strategy that efforts to maximize profits.

It is a strategy that emphasizes increasing the present value of the investment of the owners and the implementation of projects that increase the market value of securities of the company.

By using the strategy of maximizing the wealth, the financial manager faces the problem of uncertainty by taking into account the alternatives between different types of performance and corresponding risk levels. Using their knowledge of these alternatives provided risk – performance, perfect strategies to maximize the wealth of the owners in exchange for an acceptable level of risk.

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