According To Gitman, Finances are defined as «the art and the science of managing money.» As it affects the decision making of both US individuals, as well as companies and the government. Thanks to finances we can know how to invest savings, how much should be spent on income, how much to save, etc.
The Financial Administration has as its function the administration in financial matters in the private and public area, as well as the administration of financial resources in large and small companies, with or not for profit, development of corporative strategies To maximize the value of the company, of financial plans or budgets, evaluation of expenses, collection of money among other functions that are exercised in this area.
There are Also three legal forms within a business organization which are:
Unipersonal Property: Only one owner exists, usually operating in service, construction, major and retail industries. Both the owner and some employees are in charge of taking the company forward, however, there are disadvantages such as liabilities as they are the sole responsibility of the owner.
Society: In this organization there are two or more owners within a for-profit field that is to say that there is a monetary interest. This Company is established under a contract called cunning of association. One important feature is that when a partner dies, the whole society is dissolved.
Corporation: This is a company created in a legal way that has legal rights like those of an individual because it has the possibility of both suing and being sued. It Has the characteristic that the owners are their shareholders, however, this is demonstrated by their preferential or common actions.
The Company has a goal as well as its administrators which as the author says is based on «maximizing the wealth of the owners for those who work» in general terms increase the value of the shares, for that you should evaluate the performance , i.e. the net flow of cash input and the output flow. It is very important to consider this point because it is a legitimate goal for the entity, since it increases in value and it is clear that its profits can improve.
The Financial administration has a relationship with the economy and with the accounting and the following arguments will be mentioned.
Financial managers use economic theories such as supply and demand, know price theory, strategies to maximize profits, among others.
In Small Enterprises The accountant constantly carries out functions in the area of finances; In large companies some financiers compile accounting information.
On the other hand, we can say that in finance, decision-making is highlighted while in accounting the cash flows are emphasized.
The comptroller can perform functions such as: fiscal administration, cost accounting, financial accounting, corporate accounting, among others. On the other hand, the Treasurer has the capacity to perform the following functions: supervision of pension plans, interest rates, currency exchange, administering cash, risk management for the company. As A conclusion the controller is developed in the internal part and the treasurer on the outside.
Following the Treasurer and/or financial manager, there are a number of activities carried out below, score the most important:
It Makes financing decisions because it fixes the way in which the company perceives or raises money for the payment of the assets in which it has invested.
It Makes investment decisions to establish the types of assets that the company maintains.
It Makes decisions based on the value of the company and not on the accounting principles.
There Is A relationship between the company’s shareholders and the managers in terms of decision-making within a company, but there are also problems.
THE administrators operate as agents of the shareholders, this can be performed by any administrator, will be in charge of representing to the proprietors of the entity and for it in need to specify terms in a contract between the board of directors and the Agent.
The work works well when the agents make decisions that benefit the shareholders, however, when the interests of both parties are different the work does not work satisfactorily.
Financial managers share the agreement to maximize shareholder wealth, but they are also interested in personal wealth, for example: additional benefits, job security, and more.
The problem becomes evident as the administrators are disregarding the main goal which is the maximization of wealth putting their personal interests.
This brings as a consequence the costs of agency are present which symbolize a loss of wealth for the shareholders, having to supervise the administrators, because a bad administration would represent a low in the price of the Actions.
«The Environment of financial markets»
Financial institutions are intermediaries to link the money saved by companies, government and individuals either through loans or investments. They Are important because without them none of these three entities can operate or manage their funds in a better way. Individuals as a whole within the financial institutions serve as «net providers» while the above mentioned if «net applicants». Examples are: Commercial Banks, insurance companies, investment funds, pension fund, credit unions, savings and loan associations, among others.
Financial markets are forums in which the funders and suppliers make transactions directly. If we compared the functions between institutions and financial markets, we find that the institutions carry out these transactions without the previous knowledge of the savers. However, both actively participate in financial markets as fund-seekers and as providers.
There Is A watershed that allows us to differentiate between capital markets and money markets. The Money Market is established when there is a relationship between applicants for short-term funds (less than one year of maturity) and suppliers. This market exists because governments, companies and individuals keep money in inactive funds in order to obtain interest, requiring temporary or seasonal financing.
On the other hand. The capital market allows suppliers and applicants to carry out long-term transactions, including government and business securities emissions, this market is made up of stock exchanges, bonds, etc. which include International capital markets.
The Financial recession was a big blow to the banks because they were under a financial pressure in 2008, modified their rules to deliver credit and loan as the money market was no longer an option to raise money in the market unless Interest rates were extremely broad. Companies began to gather a large amount of cash and reduce costs for economic activity to contract as 8 million of jobs had been lost approximately between 2008 and 2009. So The United States Congress approved an economic stimulus of $862 billion to revive the economy, so there was little by little a recovery, but the labor market remained stagnant. All this provoked by the increase of the actions and a banking movement towards new lines of business, together causing one of the most serious crises in the financial sector since the Great Depression in 1929.
There Are regulations that Norman to financial institutions like the Glass-Steagall Law in 1933 which I believe the Federal Deposit Insurance Corporation to calm the fear that people felt during the Great Depression because it banned the institutions Financial institutions to accept deposits that were related to negotiation and financing. The Gramm-Leach-Bliley Act was Also created by former president Clinton and his Congress to allow investment banks, insurance companies and commercial banks to meet to compete in a wider range of activities.
Business taxes must be paid by individuals and by moral persons, this is according to income and are important in financial decisions as it allows them to continue with the company’s turn, to be in rule legally and with benefits of Tax deduction if you pay in time and form. Continuing in the same context, companies or corporations can deduct expenditure on interest and operating expenses, thanks to the tax deduction can reduce their cost after tax.