Financial Management

Financial management - a kind of professional activities aimed at 
management of financial and economic operation of the firms on the basis of 
use of modern methods. Financial management is one of the 
key elements of the whole system of modern management, of particular, 
priority for the current economic conditions in Russia. 
Financial management includes:

development and implementation of financial 
policy of the company using various financial instruments; 
- Making decisions on financial matters 
their specification and development of methods of implementation; 
- Information provision through 
compile and analyze financial statements of the company; 
- Evaluation of investment projects and 
a portfolio of investments, cost estimates for capital, financial 
tion planning and control; 
- The organization of the management of financial and 
economic activities of the firm. 
Methods of financial management allow us to estimate: 
- The risk and profitability of a particular method 
investment of money; 
- The effectiveness of the company; 
- The rate of capital turnover and 
production capacity.

The objective of financial management is the development and practical 
application of methods, tools and instruments to achieve the objectives of 
company as a whole or its individual industrial and economic links - Centers 
of profit. Similar goals can be:

maximization of profits; 
- Achieving a sustainable rate of return 
planning period; 
- Increase in revenue management team and 
investors (or owners) of the firm; 
- Increasing the market value of company shares and 
etc.

Ultimately, all these goals are focused on increasing the income of savers 
(shareholders) or owners (owners of capital) firms. 
The objectives of financial management is finding an optimal balance 
between short and long term goals of the firm and taken 
decisions within the framework of financial management. In the short term financial 
management, for example, decisions about the combination of objectives such as 
increase profits and raise share prices, since these goals 
can counteract to  each other. This situation occurs when 
firm that invests in the development of production, is the current losses 
expectation of high returns in the future, which will provide growth 
the value of its shares. On the other hand, the firm may refrain from 
investment in the renewal of fixed capital in order to obtain high current 
profits, which subsequently affect the competitiveness of its products and 
will reduce the profitability of production, then the exchange rate to fall 
value of its stock and, consequently, a deterioration of the financial 
the market. In the long term financial management, oriented to the same ultimate goals, 
primarily accounted for risk factors and uncertainties, in particular, 
determining the expected stock price as an indicator of return on invested 
capital. 
The objective of financial management is to set priorities and find 
compromise for the optimum combination of interests of various economic 
units in investment projects and their choice of sources 
of funding. 
In the end, most importantly in financial management - decision making 
ensure the most efficient movement of funds between the company and 
sources of funding, both external and intra. 
Flow control of financial resources, expressed in cash 
is a central issue in financial management. The flow of financial 
Resources are cash: the resulting financial 
business firms; 
- Acquired in the financial markets 
through the sale of stocks, bonds, credit; 
- Returned by the financial market actors in 
as the price of capital in the form of interest and dividends; 
- Invested and reinvested in 
development of industrial and economic activities of the company; 
- To pay taxes. 
Functions and economic methods of financial management can be divided into 
two blocks: the block of management of external finance and on intra-corporate unit 
Accounting and financial control. Block for managing external finance assumes implementation of the relationship 
firms are legally and economically independent market entities, including 
own subsidiaries that act as clients, lenders, 
suppliers and buyers of products firms, as well as with shareholders and 
the financial markets. These are: - management of current assets of the company: 
cash flows, calculations with clients inventory management 
industrial supplies, etc.; 
- Attraction of short-term and long-term 
external sources of funding. 
Block by intra-corporate accounting and financial control include: 
- Control over the conduct of industrial 
accounting; 
- Preparation of cost estimates for control 
payment of wages and taxes; 
- Data collection and processing of accounting 
accounting for internal financial management and to provide data 
by an external user: 
- Preparation and control over the correctness 
financial statements: balance sheet, income statement, statement of 
cash flow, etc.; 
- Analysis of financial statements and 
use the results to internal and external audit; 
- Assessment of the financial condition of firms in 
current period and its use for operational management 
making and planning purposes. 

The functions of financial management includes: 
- Analysis of financial statements; 
- Forecasting of cash flows; 
- Issue of shares; 
- Obtaining loans and credits; 
- Transactions with an investment; 
- Evaluation of merger and acquisition transactions of firms. 
The most important decisions in the field of financial management, are 
investment issues and the choice of sources of financing. 
Investment decisions are made on issues such as: 
- Optimization of asset structure, the definition of 
replacement needs or liquidation; 
- Development of Investment Policy 
methods and means of implementation, the definition of the financial 
resources; 
- Investment planning for the company as a whole; 
development and approval of investment projects being developed in 
production offices; 
- Portfolio management. 

Investment decisions involve the allocation of financial management of the two 
types of financial management: short-and long-term with their 
specific features. Short-term investment decisions aimed at 
determine the structure of a firm's capital for the current period, which is reflected 
in its balance sheet. Such decisions require financial managers 
deep professional knowledge in the current financial management 
firm, the ability to use reasonable methods to implement them given the current 
market trends. 
Long-term investment decisions, referred to as strategic, focused 
to ensure the success of the company in the future and require 
financial managers of the deep base of knowledge, experience and skills 
the use of modern methods of analysis for determining the optimal 
directions and ways of development of the company for the future based on objective 
patterns and the specifics of the Russian economy. 

Decisions on the choice of funding sources are taken on issues such as: 
- Policy development and implementation 
optimal combination of equity and debt for 
ensure the most efficient operation of the company; 
- Development and implementation of the policy 
raising capital on the most favorable terms; 
- Dividend policy, etc. 
The role of fiscal policy in the centralized management of the firm is determined 
the fact that it affects all aspects of its economic activity - scientific 
technical, manufacturing, logistics, marketing - and 
reflects in concentrated form, the influence of numerous internal and external 
of factors. In the framework of a unified financial policies developed at the highest 
management level, determined by the global financial sources 
resources and their distribution within the firm. 
It is difficult to determine the specific forms and methods of financial 
policy. 

3.BASIC CONCEPTS OF FINANCIAL MANAGEMENT 

Financial management is based on a number of interrelated fundamental 
concepts developed within the framework of the theory of finance.

In the financial management is fundamental 
the following concepts: cash flow, time value of money resources 
trade-off between risk and return, cost of capital market efficiency 
capital, asymmetric information, agency, alternative 
Cost, time unlimited functioning entity. One of the main sections of the financial manager 
is the selection of appropriate options for investment funds. This is done in the analysis of investment projects, based on 
which is a quantitative assessment associated with the project cash flow 
as an aggregate generated by this project inflows and outflows 
in the context of the selected time periods. The concept of cash flow 
involves a) the identification of cash flow, duration and type b) 
assessment of the factors determining the magnitude of its elements, and c)selection coefficient 
discounting, which allows to compare elements of the flow generated in the 
different points in time, and d) an assessment of risk associated with the flow and 
way of taking it into account.

The concept of trade-off between risk and return is 
that the receipt of any income in the business often fraught with risk, and 
relationship between these two interrelated characteristics directly 
proportional: the higher the required or expected return, ie return on 
capital invested, the higher the degree of risk associated with possible 
non-receipt of the return, the converse is true. Certainly, the financial 
management can pose and solve various problems, including 
limiting nature, such as maximizing profitability or minimizing 
risk, but most often it is about achieving a reasonable balance between 
risk and return. 
Category of risk in financial management is taken into account in different 
aspects: the application to the evaluation of investment projects, development of 
investment portfolio, the choice of certain financial instruments, 
decisions on capital structure, dividend policy rationale, 
assessing the cost structure, etc. 
The activities of any company is possible only if the sources of its 
of funding. They may differ in their economic nature, 
principles and methods of, methods and timing of mobilization, 
duration of existence, the degree of control, appeal to 
position of certain contractors, etc. However, probably the most important 
characteristic of the source of funds is the cost of capital 
. The meaning of the concept of cost of capital is that the maintenance of 
or other source of costs is not the same. Each source-nick 
financing has a cost. The cost of capital shows the minimum 
level of income needed to cover the cost of keeping this 
source and allows not to be at a loss. It is no accident quantitative 
estimate the cost of capital is of key importance in the analysis of investment 
projects and the choice of alternative options for financing activities 
the company. In a market economy, most companies in varying degrees 
associated with the capital market. Large companies and organizations are there in 
the role of lenders and investors in the role and participation of small firms often 
decision is limited to short term investment nature. In any 
If decision-making and choice behavior in the capital market, as well as 
Active operations are closely linked with the concept of market efficiency 
. The logic of these operations is as follows. The volume of transactions for the purchase or sale 
securities depends on how accurately the current price match 
intrinsic value. The price depends on many factors, including those from 
of information. Assume that the market is in equilibrium, 
new information that a company's stock price is lowered. 
This will immediately increase the demand for shares and a subsequent increase inprices 
to a level corresponding to the intrinsic value of these shares. how quickly 
information reflected in prices and is characterized by the level of market efficiency. First of all, we emphasize that in the annex to the capital market term 
"Efficiency" is defined not in economical, and in terms of information, ie 
degree of market efficiency is characterized by its level of information 
saturation and availability of information to market participants. In the scientific literature 
considered concept is known as efficient market hypothesis (EMN). 
According to this hypothesis, with full and free access to the market participants to 
Information on the share price is currently the best estimate of its real 
of value. In an efficient market, any new information as it 
income is immediately reflected in the prices of stocks and other securities. 
Furthermore, this information comes to the market randomly, ie not 
to predict when it will arrive and how much will be helpful. Achieving Efficient Market information is based on a series 
conditions. 
1. Market characterized by a multiplicity of buyers and sellers. 
2. Information made available to all stakeholders of the capital market 
simultaneously, and its receipt is not associated with any cost. 
3. There are no transaction costs, taxes and other factors 
impeding the settlement of transactions. 
4. Transactions made individual person or entity can not 
affect the overall level of prices in the market. 
5. All market actors act rationally, seeking to maximize 
the expected benefits. 
6. Windfall from the deal in securities as equally probable forecasted 
event for all market participants are not possible. 
Obviously, not all of the stated conditions are carried out in real life 
in full - the information can not be equal-it is not free, 
there are taxes, costs, etc. 
Certainly, the creation of an efficient market, the possible in principle, in practice 
unrealizable. None of the existing securities markets is not recognized 
analysts as effective in the full sense of the word, although the existence of 
weak form efficiency of some markets, supported by empirical 
research. 
The concept of asymmetric information is closely linked with the concept of 
effectiveness of the capital market. Its meaning lies in the fact that certain categories of 
individuals may have information that is not available to all market participants equally.

Carriers of confidential information often serve managers and 
individual business owners. This information can be used by them 
different ways, depending on what effect, positive or 
negative, can have its release. 
To some extent, information asymmetry contributes to the existence of 
in fact the capital market. Each potential investor has their own 
opinion on compliance rates and the intrinsic value of the securities, 
based mostly on the belief that he owns a 
information may be available to other market participants. The greater the number 
participants in such thinking, the more actively implemented 
operations of purchase / sale. Capital market, in principle, not too different from the commodity market, 
however, some information asymmetry is its essential 
attribute that determines its specificity, as this market like no 
the other is very sensitive to new information. In certain 
circumstances influence the information may have a chain reaction and lead to 
catastrophic consequences. 
The concept of agency becomes relevant in 
market relations as the complexity of forms of business organization. Most of the 
firms, at least those that determine the economy of the country in one way or another 
degree of inherent function of the gap between ownership and control and monitoring functions, 
whose meaning is that the owners do not have to delve 
the intricacies of the current management. Interests of the owners of the company and its 
management personnel may not always coincide, especially 
involves an analysis of alternatives, one of which provides 
short term profit, and the second - is designed for the future. Isolated and more 
fractional classification of conflicting subgroups of managers, each 
of which gives priority to their group interests. In order to known by, 
degree level possible contradictions between the targets have been 
conflicting groups and, in particular, to limit the possibility of unwanted 
actions of managers based on their interests, the company's owners 
forced to carry the so-called agency costs. The existence of such 
costs is an objective factor, and their value should be considered when 
decisions of a financial nature. One of the key concepts in financial management is the concept of 
opportunity costs or the costs of lost opportunities 
(Opportunity cost). Its meaning is as follows. Any decision 
financial nature, in most cases due to the failure of 
some alternative. For example, you can perform 
transportation of goods manufactured with our own transport and can be 
hire the services of specialized organizations. In this case, the solution 
made by comparing the opportunity costs that can be expressed more 
only in the form of relative performance. 
The concept of opportunity cost plays a very important role in the evaluation of options 
possible capital investment, capacity utilization, 
policy options and other loan buyers Alternative 
costs, also called the price of a chance, or the cost of lost opportunities, 
represent the income that the company could receive if 
chose another option available using its resources. 
Most clearly the concept of opportunity cost is manifested in the organization 
management control systems. On the one hand, any system of control 
certain costs money, ie associated with costs, which in principle can be 
avoid, on the other hand, the lack of systematic monitoring can 
lead to much greater losses. The concept of temporary operation of unlimited economic 
the subject is of great importance not only for financial 
management, but also for accounting purposes. Its meaning lies in the fact that 
company, once established, will exist forever. Of course, this 
concept in a sense speculative and arbitrary, because everything has its beginning 
and its end, and in addition, the statutes may provide for 
very limited period of operation of a particular company. In any 
country every year and at the same time creates a wound large enough 
number of different companies, however, in this case is not about some 
particular enterprise, and the ideology of economic development by creating 
independent competing firms. Establishing a certain company, its 
owners usually make strategic, long-term facilities, and not from 
short-term considerations (of course, different motifs that create a 
some firms, including for not fully legitimate transactions 
short-term, but in this case it is not the issue). And for 
accountant and financial manager for the concept is extremely important, 
since it provides the basis to apply the accounting estimates in the forecasting and analysis 
in'-. It serves as the foundation of stability and predictability of a particular 
price movements in the securities market, makes it possible to use 
fundamentalist approach to assess the financial assets. Indeed, if the 
This concept was not true in general, ie in the vast number of 
companies, in the first place, it was necessary to constantly use the current 
market valuations for reporting, and secondly, the companies would 
virtually impossible to mobilize resources in the capital market and, thirdly, 
actually would have been undermined by the idea of ​​equilibrium in the securities market, as 
It is based on multiple calculations of the theoretical value of financial 
assets on the basis of forecasts they generate revenue. It should be noted 
that the concept of unlimited time operation of the economic 
subject to explicit or implicit form and provides the basic regulatory 
documents regulating the conduct of business in Russia, for example, mention the 
Federal Law "On Joint Stock Companies", where Article 2 states that 
"Society is created for an indefinite period, unless otherwise provided by its 
the charter. " 
 

Financial management is very dynamic. Effectiveness of its operation depends on the responsiveness to changes in financial market conditions, financial situation, the financial condition of the control object. Therefore, financial management should be based on knowledge of the standard methods of administration, the ability to quickly and accurately assess the specific financial situation, the ability to quickly find a good, if not the only way out of this situation.

Financial Management - is a specific cash-flow management system, the movementof financial resources and the organization of financial relations. 
Financial management should be viewed as an integral phenomenon, with differentforms of expression. Thus, from a functional point of view of financial management is a system of economic governance and the financial mechanism. From an institutionalpoint of view of financial management is the management body.