Financial Management: Key Concepts and Techniques

Financial Management Essentials

Key Concepts in Finance

Dividends

Dividends represent the distribution of corporate profits to shareholders based on the number of shares held.

Financial Management Tasks

A primary task of financial management is determining the sources of necessary resources.

Fundraising Sources and Their Uses

The main sources of external funding are equity contributions from owners and debt financing from creditors. Internal sources include cash sales and collections.

Financial Covenants

Financial covenants are indicators used by banks to ensure that borrowers operate prudently to repay their debt.

Financial Management Techniques

Financial Analysis

Financial analysis involves calculating indicators, ratios, and proportions between different accounts of the balance sheet and income statement.

Liquidity Ratios

Liquidity ratios measure a company's ability to meet its short-term obligations.

Financial Analysis Definition

Financial analysis is a set of techniques applied to financial statements to interpret a company's financial position and aid in decision-making.

Affiliate vs. Subsidiary

An affiliate is an entity over which an investor has significant influence but is not a subsidiary or a joint venture.

A subsidiary is an entity controlled by another enterprise (known as the parent company).

Important Financial Terms

Liquidity

Liquidity represents the ability of assets to be converted into cash quickly without significant loss of value.

Current Liabilities

Current liabilities are all debts of a company maturing within one year.

Cash Reserves

Cash reserves are the funds that banks must maintain.

EBITDA

EBITDA is an acronym referring to a company's earnings before interest, taxes, depreciation, and amortization.

Equity

Equity represents the total value of a person's or company's assets minus their liabilities.

Bonds

Bonds are investment instruments with a fixed return over a known period, although their market value can fluctuate.

Equity Investments

Equity investments have an uncertain income flow.

Limited Company

A limited company is a legal entity formed by shareholders whose liability is limited to their contributions. It is always commercial, considered a capital company, and classified as either open or closed.