Financial Management Fundamentals

Posted on Apr 1, 2025 in Business Administration and Management (BAM)

Financial Management I

1. What is a Company?

A business is a system that unites three fundamental factors: production, financing, and marketing. These factors work together to achieve the company’s objectives. A fourth factor, the company’s board, organizes, plans, manages, and controls these objectives.

2. Fundamental Factors of a Company

Production: Determines what, how, and how much is produced.

Financing: Sources the funds required for production.

Marketing: Manages the sale and distribution of products.

Management: Responsible for making key decisions (also known as the direct factor).

3. Types of Companies

Companies can be categorized by:

  • Ownership: Public, private, and social cooperatives.
  • Size: Large, medium, small, and SMEs (Small and Medium-sized Enterprises).
  • Activity: Primary, secondary, and service.
  • Field of Activity: Local, provincial, regional, national, and multinational.

4. Functions of a Company in a Market Economy

  1. Anticipates and Creates Income: Forecasts market needs and generates individual income.
  2. Organizes and Directs Production: Manages the production process, adhering to governmental economic regulations.
  3. Assumes Risks: Takes on technical and economic risks associated with production and operations.

5. Inputs and Outputs

Inputs: Resources or raw materials used in the production process.

Outputs: Finished products ready for market.

Financial Management II

1. Input and Output Flow

(Graphical representation on page 7)

2. Elements of a Company

Human Capital: Owners, administrators/managers, workers/employees.

Economic Goods: Classified as durable and non-durable.

Organization: The network of authority, relationships, communication, and group activity within the company and with external stakeholders.

3. Defining the Entrepreneur

General Definition: A person driven by motivations aligned with the company’s objectives.

Classic Concept (J.B. Say): An agent who buys means of production, combines them into a product, and sells it at a price determined by costs.

Classic Concept (Marshall): A person who combines factors of production to create and sell a product, taking on risks and making economic predictions.

Modern Concept: Recognizes the separation of ownership and control. The entrepreneur, often a collegial body, makes decisions to achieve goals that reflect the interests of various stakeholders (owners, managers, employees).

4. Technical Structure

The management team, responsible for making decisions and setting the direction for the company’s future development.

5. Co-management

The increasing importance of worker participation in leadership positions.