A Look At The Origin Of Corporate Finances

A look at the origin of corporate finances

Introduction.

Finance has as its origin in the fifteenth century that it was when capitalism arose and in turn the development of banks where their main service were loans and savings that over time has evolved and applying different techniques to modernize the service. On the other hand, an area of study was considered finance during the twentieth century, which was where Irving Fisher were found.

Finance is what corresponds or belongs to the area of the economy that is based on the study as well as the correct use of the capital of a company or as formally called, financial resources. These studies are not always focused on the business field but also covers family businesses and the State, since as a result of this you can make the right decision at the time they want to make an expense, savings or investment.

Developing.

In finance we find what they call agents that their function is to execute the decision that has been made and will proceed to apply it using various financial resources which are;actions, money, bonds among others. There are also financial intermediaries that are basically responsible for communicating to both parties that are the savers and the need for financing.

Finance have different areas of study which are related to an optimal administration of those financial resources that the company has, these areas of study are:

• · The study of investment profitability.

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• · How to properly handle indebtedness.
• Keep under control the variations of the value of money over time.
• · The determination of assets prices.

Legal forms of business organization

There are three legal ways to have a good business organization that are called as a soleign property, society and the corporation where each fulfills their respective function.

a) Unipersonal Property: Refers to companies managed by one or two people who are usually dedicated to wholesale sales for their own benefit, those companies are dedicated to bicycle repair, house cleaning or even plumber.

b) Societies: Those profit activities are considered society where it consists of two or more owners, but it is not only that different from the unipersonal, but their activity is totally different, since it can be from real estate toan insurer which would already imply a written contract in between and where all partners are responsible for the debts of the same.

c) Corporations: It is an entity that the law calls it as a “legal entity”, since it happens to have rights of an individual where a claim can suffer and also sue another, in turn it can also acquire goods in its name.

Maximize the richness of shareholders

The management of a company what it seeks is to meet one of its main objectives that is to maximize the richness of the owners or shareholders in one way or another. First of all we must understand how the richness of the owners of the company’s shares are measured, this is represented with the price of each action that each partner of the company has, in turn the opportunity of this action is also measured in thecompany and what is your risk factor, knowing this, financial managers are expected to opt for the best option for shares to increase at the price.

If the decision made is the erroneous would begin a process of decapitalization of the company, which would lead to the actions to fall in a lush way, which would cut the cash flow in the company, this flow is generally given when the company has the companymore profits than he had previously.

Having more profits, the shares rise in price which would cause a dominant effect on management, since this cash flow is received by shareholders in money or generally in dividends with what they can buy more actions which is to inject moreCapital in the company or in turn sell the action that has a higher price, but this will only happen as long as there are increases in profits.

Maximize profits

It is that capacity that the company has to be able to get the greatest benefit of the operations that it is carried out, so that this happens the company must make a decision regarding the mass production that it is carried out taking into account the state of the market where it is found, production costs must also be taken into account so that a greater benefit can be obtained.

Taking into account that you can know how much a company should produce, since they are based on the maximization of the benefit when applying the following operation. Benefit (b) = total income (IT) – Total costs (CT). The benefit is reflected when the company has a big difference between total income and total costs. The strategies most used by companies to obtain a maximization of profits vary over time, but the following are usually used with their own characteristics.

• Expenditure cut
• Production and warehouse optimization
• Price and/or quality
• Subcontracting or outsourcing
• Market plan optimization

The function of financial administration

When the industrial revolution was given, companies had to necessarily acquire crucial personnel for the creation of this department which would be responsible for correctly managing those financial resources obtained by the company and that it is possible to guarantee the profitability of the same. In a company, the financial administration is of the utmost importance, since it is responsible for economic activities, which is a factor of great importance for the company, whether large or small, without a financial administration, the company is condemned to bankruptcy even if it hasthe necesary resources.

In order for a company to subsist, it has to have its path clearly set, its objectives and goals to its future such as the maximization of profits or maximizing the wealth of shareholders, but very apart from this, the financial administration must take care of theacquisitions that the company is carried out as well as its financing to subsequently make a good decision making that involves investing in the same company.

Even so, within the basic functions that this department has, there is others that are equally important such as:

• Decide the investments that the company must do.
• Responsible for financing.
• Find sources of financing and investors for the company.
• Risk Administration.

Organization of the Finance Function

The financial function is of importance depending on the size of the company, the larger the company, the more it will need this function, a way in which it is organized is to have as headed to the Vice President of Finance which is responsible for the correct direction of the direction of theAdministration as well as informs the Director General, secondly is the treasurer and the controller.

The functions that the Treasurer fulfills is the correct financial administration when making investments, financing and asset management while the functions that the controller must implement are based on the purely accounting such as accounting, projections, budgets as you must also identify the movementsthat imply cash flow of each department in the company.

But what are the main activities or functions of a financial manager? The activities or functions of a financial manager vary according to the type of company in which they work and in turn in the place that the company is located, since each country has its own laws so the following will be the most common activities or functionsFor a financial manager

1. It guarantees the liquidity of the company: the responsibility of the liquidity of the company falls with what the customers must analyze in detail and thus the market in which the company place its products or services in order to formulate a strategy that benefits the company.

two. Analyze possible investments: you must analyze and negotiate with new investors for an exponential growth of the company.

3. Advisor at the time of making decisions linked to the company’s financial management: he will advise the company’s director when he must implement a high cash sum to carry out some activity, since it can be high risk to the company.

4. It establishes alliances with banking institutions: it is the one who is in charge of the company before the banking entities so it must effectively carry out an alliance, since it must have knowledge about the banking area.

5. Lead projects that seek the expansion to new markets: identify the moment in which it is beneficial for the company to expand so it must have a leadership role at that time.

conclusion.

A financial manager has a great responsibility in the company that works, since its main activity is the supervision of the cash flows that enter and leave the company, even so it is not only to take into account that, but must have knowledge ofThe laws regulate that activity, since it could be at great risk that the accounts he has under his control do not comply with the regulations of the State and the company, which would cause an even greater problem for the company with the State, put toThis is that person in charge of the financial strategy so that the company in question remains afloat.