Important Tools for Financial Management

Tools for financial management

It is time to give prominence to financial management and banish its reputation that requires high knowledge of Sean St John and is only useful for large companies. Any company, even the smallest, can greatly strengthen its business management by applying simple financial solutions.

The first thing is to understand that a great effort is not necessary. Most of the information is provided by the financial manager like Sean St John Toronto is simple. The accounting is not only a formal obligation but a valuable source of information for business administration, key factor to make better operational and strategic decisions.

After the collapse of the financial system nobody gives anything and it is time to be more efficient and take advantage of every euro.

Main tools of financial management:

State cash flows: Key method of financial management that allows controlling cash inflows and outflows. By noting each income and expenditure pending in its expected date we can know the level of liquidity in each future moment.

Balance of situation: Result of the accounting management that summarizes the structural situation at a specific moment: both the asset (sources of wealth) and the liabilities (obligations and debts).

Keys: Promote efficient and profitable assets and maintain a proportionate liability with respect to equity.

The profit and loss account: Main accounting result. We can take a lot of advantage by analyzing the percentage of each game over the total and comparing it with other exercises.

Usefulness: well analyzed reveals possible risks (increasing expenses) and clues to strengthen the most profitable values (income with more potential).

Cost accounting: It offers different tools to control all types of business expenses. We will know in what we spend the money and how those costs evolve.

Utility: it differentiates costs and favours its control. It allows establishing more competitive prices and sales margins. It helps to establish the equilibrium point (sales volume that does not generate losses or profits) from which profit would be achieved.

Cost of financing: When financing, it is essential to calculate the full impact of the financial burden: interest, commissions and any other additional expense. Financial expenses must be affordable without problems.

Objective: the optimum is to diversify and find suitable and efficient financing alternatives.

Financial leverage: Should it be indebted without being essential? It can be feasible when the profitability that this money offers exceeds the profitability of the current resources plus the cost of that financing.

Key: the debt would act as a lever to enhance the activity while maintaining a controlled risk.

Maneuver fund (FM): It can be defined as the available capital if all our short-term debts had to be paid immediately.

Profit: if it is positive it is a good sign of solvency.

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Financial indicators (Ratios): They are calculated using simple quotients and offer information on the evolution of fundamental elements: liquidity, debt, solvency or profitability ratios.

Utility: they are good allies to discover strengths and weaknesses.

Investment evaluation: The Internal Rate of Return (IRR) or the Net Present Value (NPV) are used to evaluate investment projects.

Objective: estimate prudently the expected income and be strict in the measurement of each expense.

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