Economy and Finance

“In fact, a business can contribute to social welfare only if it is highly profitable.”

Peter F. Drucker

Economy and finance contains terms, management methods, various analytical techniques, financial indicators and standards, whose subject is financial management in a business or an organization.

It includes a comprehensive financial management, various financial management methods, i.e. handling of financial resources throughout their life cycle - from fund and capital (financing, financial market) raising, budgeting, allocation and distribution of financial resources, management and effective handling of financial resources, financial risk management, profit sharing and other financial operations in the organization.

A goal of financial management in a market economy is to maximize its market value, i.e. the market value of equity capital, for which managers, by their work are responsible to business owners and other stakeholders. A manager responsible for the financial management throughout the organization is called Chief Financial Officer (CFO). Other goals of financial management are: ensuring business’ solvency, assets liquidity and return on assets (profitability) of the business.

Objectives of financial management in public sector and Public Finance Management is described in a Public Finance article.

Financial management includes several different categories of processes such as:

Financial Planning
Obtaining financial resources (financing)
Budgeting
Financial Analysis
Financial operations, Accounting

Financial management methods:

Financial analysis - is one of the methods of evaluation of the organization. Its basis is the evaluation of financial statements and various financial indicators. Result is a ratio and synthetic indicators and other analytical outputs. Financial analysis can use various analytical techniques
- Cash Flow analysis
- Indebtedness analysis
- Liquidity analysis
- Profit analysis
- Return on assets and activity analysis
Cost analysis
- ABC Method (Activity Based Costing)
- Cost-Volume Profit Analysis
- Fixed costs
- Marginal costs
- Total Cost of Ownership (TCO)
- Unit costs
- Variable costs
Current assets management methods
- Accounts receivable management methods
- Cash flow management methods
- Cash management methods
- Inventory management methods
- Liquidity management methods (cash management, cash flow management)
- Payment methods
Methods and means of financing (obtaining financial resources)
- Leasing methods
- Long-term financing methods
- Short-term financing methods
Investments management methods
- Depreciation methods
Business Valuation Methods

Financial management methods are based on various financial indicators and statements:

Profit ratios
- EAC, EAT, EBT, EBIT,EBITDA, Gross Margin, NOPAT, Economic profit, Net profit plus interest after taxes
Value criteria for measuring business performance
- CFROI - Cash Flow Return on Investment
- CROGA - Cash Return on Gross Assets
- EVA - Economic Value Added
- MVA - Market Value Added
- RONA - Return on Net Assets
Cash Flow ratios
- Cash flow liquidity
- Cash flow per share
- CF interest coverage
- CF Return On Assets - ROA(CF)
- CF Return on Equity
- CF Return On Equity – ROE (CF)
- CF return on sales - ROS(CF)
- CF solvency
- Debt relief level
- Debt repayment period
- Fixed payment coverage
- Price-To-Cash-Flow-Ratio
- Self-financing ratio
Liquidity ratios
- CPR - Cash Position Ratio
- CR - Current Ratio
- QAR - Quick Asset Ratio
Profitability ratios
- DuPont Analysis – decomposition of Return on Equity ratio
- ROA - Return on Assets
- ROC - Return on Capital
- ROCE - Return on Capital Employed
- ROE - Return on Equity
- ROGIC - Return on Gross Invested Capital
- ROI - Return on Investments
- ROIC - Return on Invested Capital
- ROO - Return on Organization
- ROR - Return on Revenue
- ROS - Return on Sales
Investment valuation techniques (investment options)
- AAR - Average Annual Return
- ABPM - Accounting-Based Profitability Measures
- APP - Average Payback Period
- IRR - Internal Rate of Return
- NPV - Net Present Value
- PI - Profitability Index
- PP - Payback Period
- ROAA - Return on Average Assets
Indebtedness Ratios
- DCR - Debt Coverage Ratio
- Debt to Equity Ratio
- Equity Indebtedness Ratio
- Equity Ratio
- Financial leverage
- TIE - Times Interest Earned Ratio
- Total Debt to Total Assets Ratio
Activity Ratios
- ACP - Average Collection Period) Creditiors Payment Period
- Fixed Assets Turnover
- Inventory Turnover
- Inventory Turnover Ratio
- Total Assets Turnover Ratio
- Trade deficit
Market value ratios (capital market)
- P/S - Price to Sales Ratio
- BV - Book Value
- Dividend Cover
- Dividend Yield
- EPS - Earnings Per Share
- P/B - Price Book Value, M/B - Market to Book Ratio
- P/E - Price Earnings Ratio
- Payout Ratio
- Plowback Ratio
- Price to Earnings to Growth Ratio
- Sustainable Growth Rate
Productivity ratios
- EVA - Economic Value Added
- TFP - Total Factor Productivity
Other financial ratios
- Altman Analysis (Altman Z-score) - Altman Index
- CAGR - Compound annual growth rate
- DAR - Debt/Asset ratio
- NWC - Net Working Capital
- WACC - Weighted Average Cost of Capital
- WC - Working Capital
Absolute ratios
- Horizontal analysis
- Vertical analysis
Difference ratios
Relative ratios
- Activity Ratios
- Indebtedness Ratios
- Liquidity Ratios
- Market Value Ratios (capital market)
- Profitability Ratios
Set of interrelated ratios - e.g. Balanced ScoreCard (BSC)
Basic financial statements:
- Balance Sheet
- Cash Flow
- Income Statement

Analytical techniques used in financial management:

Standards in field of finance:

Accounting Standards
SOX (Sarbanes-Oxley Act)

Keywords in finance field:

Costs
Finance
Financial Result
Revenue

Related management field:

Inventory Management
Risk Management

Other information and sources (International)

IMA (Institute of Management Accountants)


Management Fields Economy & Finance Management Facility Management Informatics & IT Management Human Resources Management Logistics & Transportation Organizational Management Marketing & Sales Production Management Quality Management Crisis Management Innovation Management Process Management Service Management Project Management Risk Management Change Management Knowledge Management Strategic Management Mangement Functions Planning Organizing Leadership & Communicating Decision Making Control Management Market Sectors Natural Resources Industrial Sector Service Sector Public Sector Knowlege sector Disciplines Economics Psychology Social Psychology Sociology Pedagogy	cs \| en Economy and Finance Article Discussion User articles Article in PDF “In fact, a business can contribute to social welfare only if it is highly profitable.” Peter F. Drucker Economy and finance contains terms, management methods, various analytical techniques, financial indicators and standards, whose subject is financial management in a business or an organization. It includes a comprehensive financial management, various financial management methods, i.e. handling of financial resources throughout their life cycle - from fund and capital (financing, financial market) raising, budgeting, allocation and distribution of financial resources, management and effective handling of financial resources, financial risk management, profit sharing and other financial operations in the organization. A goal of financial management in a market economy is to maximize its market value, i.e. the market value of equity capital, for which managers, by their work are responsible to business owners and other stakeholders. A manager responsible for the financial management throughout the organization is called Chief Financial Officer (CFO). Other goals of financial management are: ensuring business’ solvency, assets liquidity and return on assets (profitability) of the business. Objectives of financial management in public sector and Public Finance Management is described in a Public Finance article. Financial management includes several different categories of processes such as: Financial Planning Obtaining financial resources (financing) Budgeting Financial Analysis Financial operations, Accounting Financial management methods: Financial analysis - is one of the methods of evaluation of the organization. Its basis is the evaluation of financial statements and various financial indicators. Result is a ratio and synthetic indicators and other analytical outputs. Financial analysis can use various analytical techniques Cash Flow analysis Indebtedness analysis Liquidity analysis Profit analysis Return on assets and activity analysis Cost analysis ABC Method (Activity Based Costing) Cost-Volume Profit Analysis Fixed costs Marginal costs Total Cost of Ownership (TCO) Unit costs Variable costs Current assets management methods Accounts receivable management methods Cash flow management methods Cash management methods Inventory management methods Liquidity management methods (cash management, cash flow management) Payment methods Methods and means of financing (obtaining financial resources) Leasing methods Long-term financing methods Short-term financing methods Investments management methods Depreciation methods Business Valuation Methods Financial management methods are based on various financial indicators and statements: Profit ratios EAC, EAT, EBT, EBIT,EBITDA, Gross Margin, NOPAT, Economic profit, Net profit plus interest after taxes Value criteria for measuring business performance CFROI - Cash Flow Return on Investment CROGA - Cash Return on Gross Assets EVA - Economic Value Added MVA - Market Value Added RONA - Return on Net Assets Cash Flow ratios Cash flow liquidity Cash flow per share CF interest coverage CF Return On Assets - ROA(CF) CF Return on Equity CF Return On Equity – ROE (CF) CF return on sales - ROS(CF) CF solvency Debt relief level Debt repayment period Fixed payment coverage Price-To-Cash-Flow-Ratio Self-financing ratio Liquidity ratios CPR - Cash Position Ratio CR - Current Ratio QAR - Quick Asset Ratio Profitability ratios DuPont Analysis – decomposition of Return on Equity ratio ROA - Return on Assets ROC - Return on Capital ROCE - Return on Capital Employed ROE - Return on Equity ROGIC - Return on Gross Invested Capital ROI - Return on Investments ROIC - Return on Invested Capital ROO - Return on Organization ROR - Return on Revenue ROS - Return on Sales Investment valuation techniques (investment options) AAR - Average Annual Return ABPM - Accounting-Based Profitability Measures APP - Average Payback Period IRR - Internal Rate of Return NPV - Net Present Value PI - Profitability Index PP - Payback Period ROAA - Return on Average Assets Indebtedness Ratios DCR - Debt Coverage Ratio Debt to Equity Ratio Equity Indebtedness Ratio Equity Ratio Financial leverage TIE - Times Interest Earned Ratio Total Debt to Total Assets Ratio Activity Ratios ACP - Average Collection Period) Creditiors Payment Period Fixed Assets Turnover Inventory Turnover Inventory Turnover Ratio Total Assets Turnover Ratio Trade deficit Market value ratios (capital market) P/S - Price to Sales Ratio BV - Book Value Dividend Cover Dividend Yield EPS - Earnings Per Share P/B - Price Book Value, M/B - Market to Book Ratio P/E - Price Earnings Ratio Payout Ratio Plowback Ratio Price to Earnings to Growth Ratio Sustainable Growth Rate Productivity ratios EVA - Economic Value Added TFP - Total Factor Productivity Other financial ratios Altman Analysis (Altman Z-score) - Altman Index CAGR - Compound annual growth rate DAR - Debt/Asset ratio NWC - Net Working Capital WACC - Weighted Average Cost of Capital WC - Working Capital Absolute ratios Horizontal analysis Vertical analysis Difference ratios Relative ratios Activity Ratios Indebtedness Ratios Liquidity Ratios Market Value Ratios (capital market) Profitability Ratios Set of interrelated ratios - e.g. Balanced ScoreCard (BSC) Basic financial statements: Balance Sheet Cash Flow Income Statement Analytical techniques used in financial management: Pareto Principle PESTLE Analysis SWOT Analysis VRIO Analysis Standards in field of finance: Accounting Standards SOX (Sarbanes-Oxley Act) Keywords in finance field: Costs Finance Financial Result Revenue Related management field: Inventory Management Risk Management Rating: Only registered users can rate the article. Sign in Close 0 0 Last update: 18.04.2012 Tweet Save this on Delicious Other information and sources (International) IMA (Institute of Management Accountants)	Related publications Financial Statement Analysis An updated guide to the essential discipline of financial statement analysis ... more Ad