Profesiones

Financial management 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 significance of this function is not only seen in the 'Line' but also in the capacity of 'Staff' in overall administration of a company. It has been defined differently by different experts in the field.

It includes how to raise the capital, how to allocate it i.e. capital budgeting. Not only about long term budgeting but also how to allocate the short term resources like current assets. It also deals with the dividend policies of the shareholders.

LO1 The field of finance integrates concepts from economics, accounting, and a number of other areas.

Economics provides a structure for decision making in such areas as risk analysis, pricing theory through supply and demand relationships, comparative return analysis, and many other important areas. Economics also provides the broad picture of the economic environment in which corporations must continually make decisions. Economic variables, such as gross domestic product, industrial production, disposable income, unemployment, inflation, interest rates, and taxes (to name a few), must fit into the financial manager’s decision model and be applied correctly.

Accounting is sometimes said to be the language of finance because it provides financial data through income statements, balance sheets, and the statement of cash flows. The financial manager must know how to interpret and use these statements in allocating the firm’s financial resources to generate the best return possible in the long run. Finance links economic theory with the numbers of accounting, and all corporate managers—whether in production, sales, research, marketing, management, or longrun strategic planning—must know what it means to assess the financial performance of the firm.

LO2 A firm can have many different forms of organization.

The sole proprietorship form of organization represents single-person ownership and offers the advantages of simplicity of decision making and low organizational and operating costs. The major drawback of the sole proprietorship is that there is unlimited liability to the owner. The profits or losses of a sole proprietorship are taxed as though they belong to the individual owner.

The second form of organization is the partnership. Multiple ownership makes it possible to raise more capital and to share ownership responsibilities. Most partnerships are formed through an agreement between the participants, known as the articles of partnership, which specifies the ownership interest, the methods for distributing profits, and the means for withdrawing from the partnership. For taxing purposes, partnership profits or losses are allocated directly to the partners, and there is no double taxation as there is in the corporate form. To circumvent this shared unlimited liability feature, a special form of partnership, called a limited liability

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