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Principles of Financial Management – Essay Sample

Principles of Financial Management – Essay Sample

Financial management is a system of principles, means and forms of economic relations between companies, aimed at managing their financial and economic activities, which include development and implementation of financial policies, informational support, evaluation of investment projects and financial planning. Finance consists of 3 interrelated areas: money and capital market, investment market and financial management. Financial management is a form of business management with the methods and tools of the financial mechanism or other management. Certain conditions are necessary for the effective functioning of financial management. They are: private ownership of means of production, self-financing business, market pricing and labor market. The basic principles of financial management include the following: the principle of financial strategy, which determines the possibility of balancing the material and financial resources; principle of strategy, which helps to identify the possibilities to expand production and to choose new ways of financing; control over the implementation of decisions; previous experience and its relevance to the future.

Effective functioning of financial management is possible by a number of principles that are closely related to the goals and objectives of the enterprise. Integration with overall system management is one of them. Financial management works closely with other functional management (production management, innovation management, personnel management). Accordingly, financial management is influenced by the general principles of planning, target orientation, diversity, etc. Another fundamental principle is the complex nature of management decisions. Financial management is an integrated management system that ensures the development of interrelated management decisions, each of which brings its share of the overall effectiveness of financial activity. The variations of approaches to the development of specific management decisions and a focus on long-term strategy of the enterprise are the principles which help to achieve the strategic objective of sustainable economic development in future.

To sum up, the basic principles of financial management are: financial independence of the enterprise, self-financing company, financial responsibility and financial interest of the company.

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