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CHAPTER 9
MANAGEMENT FINANCE
UNDERSTANDING FINANCIAL MANAGEMENT
For a company, finances are like an important foundation and must be managed well. If not, the company's finances will fall apart and the company's activities will stop. Therefore, companies need a special division or team to take care of finances. Usually this section is called financial management.
management is an activity that includes planning, managing, storing, and controlling company funds and assets. Financial management must be handled with careful planning so as not to cause problems in the future that are detrimental to the company. Financial management has an important role in accelerating business development. A company needs its own field that takes care of the financial department or it could also be called financial management. So it can be concluded that financial management has an interest in how to create and maintain the economic value of a company.
FINANCIAL MANAGEMENT ACCORDING TO EXPERTS The following is an explanation of financial management based on explanations from experts:
- Bambang Riyanto According to Bambang Riyanto, the definition of financial management is all company activities related to efforts to obtain the necessary funding with minimal costs and on the most favorable terms, as well as efforts to use these funds as efficiently as possible.
- Agus Sartono According to Agus Sartono, the definition of financial management is everything related to the effective allocation of funds in various forms of investment as well as efforts to collect funds for investment financing or for efficient spending.
- JF Bradley According to JF Bradley, financial management is an area of business management aimed at managing the use of capital wisely, selectively and thoroughly from capital sources to enable the spending unit to move towards achieving its goals.
- Grestenberg According to Grestenberg, the definition of financial management is how a business is organized to obtain funds , how to obtain funds, how these funds are used, and how the business is distributed.
- James VanHorne According to James VanHorne, the definition of financial management is all activities related to obtaining funds and managing funding, as well as managing assets with the aim of all company activities.
- Weston and Copeland According to Weston and Copeland, the definition of financial management is a function and responsibility of financial managers. The main function of financial management concerns decisions regarding capital investment, financing business activities, and distribution of dividends in a company.
SCOPE OF FINANCIAL MANAGEMENT As explained in the definition of financial management above as an effort to manage company assets, this management has a special scope that a manager must understand, including:
1. Funding Decisions ( Financing decisions )
Funding decisions are decisions taken by the company related to financial structure. These decisions are in the form of short term , long term and company funds. This decision includes all policies related to how to obtain funds, such as policies for issuing bonds or policies for seeking short-term and long-term debt. The funds in question can come from within the company itself or from external sources.
2. Investation decision ( Investment decisions )
Everything related to the formation of policies for capital investment such as fixed assets
. Capital can be in the form of land, buildings or company infrastructure, including production machines. Investments can also be in the form of financial assets such as securities, shares and bonds. Investment is the right step for companies to develop business capital in the future. However, making an investment is not an easy thing, you need a mature strategy, because the investment must be taken into account. If it goes according to plan, the investment can be beneficial for a company.
3. Asset Management Decisions (Asset Management Decision)
Policies relating to the management of company assets related to current assets and current liabilities. Current assets are assets that are only used for a short time, usually less than one year. For example, cash, securities, receivables, etc. Meanwhile, current debt is a financial obligation that must be repaid immediately, for example short-term credit from a bank. Must be managed efficiently to achieve company goals.
4. Share Distribution Decision ( Dividend decision )
Share distribution decisions ordividend decisions relate to the funds that must be given
to the shareholder company or in short, profit distribution. Refunds can be in the form of shares or investments.
Making the financial management decisions above is the responsibility of a financial manager in managing his company's finances.
OBJECTIVES OF FINANCIAL MANAGEMENT This financial management must have clear objectives, there are several objectives of financial management:
- Maintain Cash Flow In a company, the inflow and outflow of cash must be continuously monitored to avoid inflated expenses. As a result, it can cause company losses. Cash is usually spent to buy raw materials , pay employees, and other expenses.
- Maximizing Company Finances The task of financial management is not only to supervise finances, but also to see budget activities that are not profitable for the company which can be eliminated and replaced with activities that are more profitable for the company.
- Preparing Capital Structure In planning the capital structure, the Financial Manager must be able to balance the budget owned by the company's borrowed funds.
- Maximizing Profits Proper financial planning will be able to maximize profits obtained in the long term.
- Increase Efficiency By budgeting the right funds for all aspects, the efficiency of company funds will continue to increase.
- Optimizing Company Wealth Financial managers must also be able to read the stock market. By providing the maximum possible profit distribution to shareholders, it will certainly improve the company and give shareholders confidence to continue investing in the company.
- Reducing Operational Risk The right decisions made by financial managers will affect uncertain business risks at any time.
- Ensuring the Continuity of Company Life Financial managers play an important role in the running of a company. The right decision will be able to make a company survive in business competition, but on the other hand, a careless decision will cause a company to go bankrupt.
- Reducing Capital Costs Financial managers must make appropriate capital plans, so that capital use can be minimized in such a way.
of more than one year. Short-term sources of funds include trade credit, bank loans,
commercial paper , factoring, while long-term sources of funds include retained earnings,
new shares and issuance. bond.
MAIN DUTIES AND ACTIVITIES OF FINANCIAL MANAGER The main tasks of financial managers include decisions about investment, financing business activities and distributing dividends in a company, so the task of financial managers is to plan to maximize company value. Another important activity that financial managers must carry out concerns four aspects, namely:
- First, namely in planning and forecasting, where the financial manager must collaborate with other managers who are also responsible for the company's general planning.
- Second, financial managers must focus on various investment and financing decisions, as well as everything related to them.
- Third, financial managers must work together with other managers in the company so that the company can operate as efficiently as possible.
- Fourth, regarding the use of money markets and capital markets, financial managers connect companies with financial markets, where funds can be obtained and company securities can be traded.
COMPANY FUNDING DECISIONS The funding decision of a company is a decision made by the financial manager regarding how to finance the investment decisions that the company will make. The funding decision itself includes: :
1. relating to where company funds come from; 2. related to the analysis of the cost of funds or capital used by the company.
Company funding based on its origin is divided into 2 sources, namely:
- Internal funding Funds/ Money come from internal companies, namely from retained earnings. Of the total net profit recorded, the company distributes a portion as dividends to shareholders. For the remainder, they keep it as retained earnings. Companies can use retained earnings to meet operational needs or to support funding for business expansion.
- External funding Money comes from external parties, either for equity capital or debt. Companies can raise money from the capital market by issuing debt securities or shares, or, the company borrows from banks. External funding is usually for expansion such as establishing new production facilities or acquiring other companies. Such corporate actions usually require significant funds , greater than can be financed internally.
company funding according to time figures is
- Short-term sources of funds are sources of funds embedded in the company with a maximum term of one year.
- Medium-term sources of funds are sources of funds embedded in the company with a term of between 1 year and 10 years.
- Long-term sources of funds are sources of funds embedded in the company with a term of more than 10 years.
main parties providing funds or external capital can consist of:suppliers , banks and capital
markets.
1. Suppliers providing funds to a company in the form of selling goods on credit, whether
for the long term, medium term or short term.
- Banking institutions are credit institutions that have the main task of providing credit in addition to providing services in the financial sector, for example: a. Monetary authority (Central Bank/Bank Indonesia) b. Commercial Banks, namely banks that carry out business activities conventionally or based on Sharia principles and whose activities do not provide traffic services payment.
c. People's Credit Banks are banks that carry out business activities conventionally or based on
- Financial markets It is a meeting between demand and supply for financial assets, namely a piece of paper that has value because it gives its owner a claim on the income or assets owned by the
party who issued the financial asset. for example : shares, bonds, options, futures
contracts and so on. The existence of this market functions to allocate funds from
parties who have excess funds to parties who need funds. In the financial market, short-term funding sources and long-term funding sources are traded.
a. Sources of short-term funds will be traded on the money market, for example
Bank Indonesia Certificates, money market securities and so on.
b. long-term funding sources will traded on the capital market , for example shares,
bonds and etc.
The types of external funding sources in company funding include the following:
1. Factoring ( factoring). Companies sell their invoices to financial institutions such as
finance companies. They do this to earn some immediate cash.
2. facility. The bank allows the company to withdraw more money than is in its bank
account up to an agreed limit.
- Share capital. The company asks the owner to add capital to the company. Alternatively, a company can issue shares in the capital market to raise funds.
4. Line of credit. This is an unsecured bank loan. Banks determine the maximum loan
amount that a company can withdraw during a certain period, usually one year. The
company must pay a certain fee or a certain percentage of the loan in a checking account
at the bank.
5. Rolling credit. This is similar to a line of credit with additional fees in addition to interest.
The term may be two to five years. This loan does not have a fixed payment amount. The company can withdraw the loan, repay it, then withdraw it in any way and any number of times, until the end of the revolving credit arrangement period.
6. Commercial paper. These are money market securities and represent unsecured loans.
Companies issue them to obtain short-term funds to meet trade receivables or other liabilities that are due in one year or less.
7. Medium term notes. This is a medium-term debt security. Companies issue them by
offering fixed or floating coupons. Unlike corporate bonds, companies can offer them continuously through various brokers instead of issuing the full amount all at once. In
Indonesia, trading is via over the counter , not on the capital market.
- Corporate bonds. These are long-term debt securities , usually transacted through the
capital market and with a larger nominal value than medium term notes.
- Mortgage. This is a bank loan, secured by property and has a long term.
- Grant. This funding usually comes from charities or governments to help businesses with certain criteria such as being environmentally friendly or providing jobs in certain areas.
11. Crowdfunding. Funding came from a large number of people, each contributing
relatively small amounts. This funding model is usually through a website or social media.
- Venture capital. This is private equity funding and is usually provided to new companies or startups. Private equity firms raise funds from wealthy individuals, investment banks, or other financial institutions.
Bibliography of this Chapter
- Private, Basu, 2002, Introduction to Modern Business, Yogyakarta, Liberty Publishers
- Ricky, Griffin, Ronald, and Ebert, Business, 2002 , Sixth Edition Prentice Hall, New Jersey
- Sigit, Suhardi, Introduction to Practical Company Economics, 1982, Liberty Publisher Yogyakarta
- Alma, Buchari, Introduction to Bismis , 2008 , Alphabeta Bandung Publisher
- Fuad, M, Introduction to Bismis , 2009 , Gramedia Jakarta Publishers
- Gitossudarmo, Indriyo, Introduction to Bismis , 1999 , BPFE Yogyakarta Publisher
