We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Are the Different Financial Management Concepts?

Helen Akers
By
Updated: May 17, 2024
Views: 4,355
Share

Financial management concepts encompass financial reporting, the way a company finances its operations, assets and liabilities, and market risk. On a personal level, financial management is usually related to budgeting and credit management. Businesses also analyze the way monetary resources are spent in proportion to revenues. Some countries require corporations to adhere to Generally Accepted Accounting Principles (GAAP) and other government regulations when compiling official financial statements, which is a part of the analysis side of financial management.

Businesses use financial management concepts when determining how to raise capital for their operations. Companies often have to decide whether to issue public equity, public debt, or seek out private investors. Business leaders also have to strategically manage how much of a company's financing comes from each source. A crucial part of effective financial management is creating the proper mix of investment sources, which should be mutually cost efficient and beneficial to the company and its investors.

The efficient use of assets and liabilities is another one of the major financial management concepts. In ideal situations, companies should have enough current liquidity from their assets to cover their immediate liabilities. This ensures that they avoid financial hardships, bankruptcies, and retain market confidence. Related to this concept is the idea of choosing the right mix of liabilities, since having too many long-term debts on assets that can't be easily liquidated might be harmful.

Financial reporting is one of the important financial management concepts. In the United States, publicly traded corporations must produce annual reports that include the firm's balance sheet, statement of cash flows, and income statement. Besides providing official, certified financial documents that reveal the firm's monetary standing, the annual report gives investors insight into management's strategic goals and analysis. These reports give the investment market a chance to determine whether the company is worth buying stock or bonds from.

Market risk can refer to a firm's willingness to expand and take on new capital projects, such as a new product line or geographic market. The concept can also refer to the company's performance in the exchange market and whether investors see an adequate return in the short or long-term. Market risk can be important to a company since it often signals the firm's ability to grow, yet manage its resources wisely.

Personal or consumer financial management concepts often have to do with a person's ability to spend less than he makes. Budgeting is a practice that can help document expenditures versus income and reveal areas where spending can be reduced. Saving money for large purchases and choosing credit wisely is also related to personal financial management. Time value of money concepts, such as how much of a deposit is needed for savings to grow and how much credit actually costs in the long-run, are heavily used in personal finance techniques.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Helen Akers
By Helen Akers
Helen Akers, a talented writer with a passion for making a difference, brings a unique perspective to her work. With a background in creative writing, she crafts compelling stories and content to inspire and challenge readers, showcasing her commitment to qualitative impact and service to others.

Editors' Picks

Discussion Comments
Helen Akers
Helen Akers
Helen Akers, a talented writer with a passion for making a difference, brings a unique perspective to her work. With a...
Learn more
Share
https://www.wisegeek.net/what-are-the-different-financial-management-concepts.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.