It is worth establishing that financial planning undoubtedly plays a major role in the success of any business or company. In business, financial management can be defined as a managerial function that involves organizing and controlling a company’s financial resources to maximize returns on its investments (Muhammad, 2021). In other words, the main purpose of financial management is to ensure that the enterprise fulfills its main function of being profitable.
Regarding the specific activities that comprise financial management, it needs to be said that they tend to depend on the enterprise in question, as well as on its sector and size. In general, the responsibilities of a financial manager include the following: financial analysis and planning, investment decisions, financing and capital structure decisions, management of financial resources, and risk management (Muhammad, 2021). By overviewing these activities, it becomes evident that most of them are rooted in decision-making.
As decision-making plays a big role in financial management, the tools that help to gather information on the company’s finances are among the most vital for this role. The main tool of measuring the performance of an enterprise is considered to be the analysis of its financial statement. The financial statement usually consists of a balance sheet, an income statement, and a cash flow statement, which contain the main financial metrics of an enterprise, such as its net income, revenue, and others (Muhammad, 2021). There are many techniques to interpret a financial statement by comparing the metrics to those of other companies, industry standards, and the data from previous years; one of the most common is ratios analysis (Muhammad, 2021). Personally, I am yet to apply financial statement analysis in practice, but I acknowledge the potential efficiency of this method.
References
Muhammad, N. M. N. (2021). Fundamental of financial management, 2nd edition. UMK PRESS.