Financial Management
Any enterprise in the development process can start to attract funds from outside, for the development of their production and increase profits. Activities aimed at attraction of financial resources and their effective use, call management of the Finance. The main purpose of this kind of activity is organization of rational distribution of funds between all the articles of the company's expenses, the primary focus of this will repay the debt to investors.
The maximum increase in profit is the main task of the financial Manager. Since profit is the difference between the costs associated with the production of this or that product, and the proceeds received from the sales of these products, it is desirable that the revenue of as much as possible exceeded the costs. But, in any case, in order to organize some kind of production and to establish the realization of products of its activity requires significant initial capital. There are several ways to obtain it.
Widespread variant of reception of cash from the outside - this is the use of the loan. It can provide you with necessary for the financing of company funds and distribute them in accordance with the financial policy adopted by the moment of receipt of the loan. When making a decision about the loan of the necessary funds it is important to consider that the profit received from them, should significantly exceed the percentage that must be repaid in accordance with the terms of the loan. The financial Manager should seek such a mix of funding sources, which will be able to ensure the payment of the smallest interest for the loan.
The next point of the financing strategy will be the choice of appropriate methods of distribution of funds, in other words - elaboration of the financial plan of the enterprise. Its essence lies in the proper allocation of funds to achieve the maximum effect from their use, which, in turn, is a guarantee of development of the enterprise, and also provides the best balance between received and spent funds. This process is usually called «planning of cash flows».
The main part of the funds the company receives in the form of their income, which is composed of the results of the various activities of the company. The list of such articles of the income of the enterprise may include, first of all, the implementation of this enterprise products. In addition, it is possible to lease the property of the company or receive income from interest on investments in other activities and the funding of other companies. There is also an option of credit agreements with suppliers of raw materials and consumables, as well as banks and other organizations providing lending services. As a source of additional funds is widely used the issue and sale of own shares and bonds.
By using funds from the above sources, the company is obliged to pay them a certain amount. She is the cost of capital, that is, the percentage which the company must pay to the owner of the borrowed funds, and which makes the average interest rate. The interest rate depends on the reliability of the company. Accordingly, the less reliable the company, the greater the percentage of it will be obliged to pay to the borrower. The degree of risk to the borrower is the sum of the period for which the loan is issued, and the quality of the enterprise, the loan taker. Accordingly, if the company was sufficiently stable, it will pay a smaller percentage. And with the increase in term of a loan is growing and the interest rate.
In the development of financial strategy of the enterprise chooses the sources of financing of many possible options. In the first decision, where to take means to exploit their own resources or attract external sources of financing. In addition, the defined time length of the funding strategy and the preferred use of internal financial reserves or the need to attract debt and equity capital.
When using the so-called «internal» financing, the enterprise spends funds remaining after payment of taxes and compensation of expenses. In other words enterprise finances itself, using their profits. But in most cases this approach is inappropriate, since, by investing retained earnings in the «external» operations of the company will be able to get more benefits.
Planning the timing of funding (short-term or long-term) directly depends on what, for what period of time the company expects to complete your project.
This decision is based on the so-called principle of conformity. He suggests that the time spending borrowed money, and time to which the enterprise takes the loan must correspond to each other. For the enterprise is much more profitable to use borrowed capital, as it costs a lot cheaper than equity. Payment of interest on the loan is possible from the whole amount of income. After repayment of the interest amount of the loan, the company has to pay taxes and dividends to shareholders. Thus, the liabilities to the creditors are repaid in the first place, and already from the rest of the amount of income produced accrual of shareholders. But the big drawback of the use of borrowed capital for the enterprise still remains a high degree of risk does not cope with the repayment of the interest on the loan amount.
For the continuous development of the company's required capital investments, that is, the constant use of funds of the company, by which sold anything necessary for her activities and development; possible, and the acquisition of things, having independent value. Before the adoption of decisions on major capital investment is the study of the possible risks and is calculated profit, which the company hopes to obtain by making an attachment. Thus, âû÷ëåíÿþòñÿ investment options that can bring the maximum profit. If the expected benefits exceed the amount of the required investment, the investment is considered to be rational. This study possible areas of investment and the related financial risks and prospects usually denoted as planning of capital investments.
Short-term financing.
The most profitable form of borrowings are short-term. Perpetrated by the company regardless of its size and appearance. Short-termed borrowing, which the company undertakes to repay the term of up to one year. As a rule, restricted cash short-term loans are used for payment of the current expenses of the enterprise.
Long-term financing
An enterprise may use, both external and internal sources of financing for implementing long-term projects. Internal sources are: the reinvestment of all profits and implementation of the company's own assets, the external long - term loans, leasing, bonds and shares.
Long term loan is repaid within the period, the value of which more than one year, as a rule, is taken under the pledge of real estate (mortgage), and the source are often commercial banks, less frequently, pension funds and insurance companies. Interest rates on these loans are high, so as the repayment period is fraught with risks for the investor. Widely used enterprise and long-term rent of the equipment (leasing) with the subsequent right of redemption.
Releasing your bond, the company may also receive a certain amount of money. Bonds are debt obligations, for which the company pays the cost of the bond plus interest. The notes may be secured (the guarantee is the property of the enterprise) and unsecured. Term of payment on the bonds is from ten years and more. During this period, the depositor receives the value of the bonds and the interest, and the interest will be the higher, the less reliable the enterprise.
If the bonds are urgent, the duty on them is redeemed at one time. For serial same bonds of the company repays series, that is periodically. There are also recall and convertible bonds. The first company may redeem the earlier period, the second - exchange for their shares. As a rule, the companies always have a reserve Fund maturity of which are due to annual debt redemptions of the bonds.
People who are the holders of shares of the company are legally its co-owners. Each owner of shares of the company has the right on a part of its profit. The volume of payments particular shareholder depends on the type of shares: preferred they or ordinary. The advantage of the first in more than a high percentage of payments and in fact, that payments on them are the first priority, the disadvantage is their owners have no right «to vote, i.e. to participate in the life of the company. The ordinary shares are «voting», but the interest on them below and are in the last turn. Preferred stock generally does not change its value, and the ordinary can sharply change in price, so on a difference of the prices you can earn.
When buying shares of the company owner receives a document, confirming the right of ownership, that is, the certificate of shares. The shares of the company are securities, they have a price, i.e. the nominal value. The Charter capital of this is called the sum of all shares issued by the company. Shareholders of the company have the right to participate in the company's profits, which they receive in the form of dividends.
