Corporate finance – fundamental for efficient company management
Every entrepreneur’s dream is to open their own business and make a profit from it. What is often forgotten is that for this to happen, it is necessary to have in-depth knowledge of the numbers generated by the company and when I say numbers, I am referring to everything: costs, metrics, contribution, revenue, etc.
In other words, it is essential that the entrepreneur knows the real financial situation of their business in order to outline and implement actions capable of providing efficient financial management that generates profit.
This is precisely where corporate finance comes in, which is nothing more than a study of the best way for the company to use and manage its financial resources and create value for it, as well as the consequences, whether positive or negative, of such application for the business and financial indicators.
Corporate finance can and should be applied to any business, regardless of its size, as its focus is to provide the organization with subsidies so that it can make the best decisions regarding its finances and thus achieve effective results and maximize its value.
Some issues studied by corporate finance are:
- How to minimize expenses;
- What is the best way to acquire more resources;
- What to do with the profit.
Health indicators in corporate finance
Some indicators are capable of monitoring a company’s financial health and thus offering parameters for better decision-making. Learn about some of them:
Invoicing
Through this indicator, the organization monitors what it sells and how much money it earns from it. Based on this sum, it is possible to establish metrics regarding the business’s production, the price of its product/service, view its market share and develop strategies to reach its customers.
Fixed costs
Every company has fixed costs, but it is essential to know each of them in detail in order to understand which fixed costs require part of the business’s financial resources. Costs such as water, electricity and telephone bills, employee payments, etc., are essential for the effective functioning of the organization, even if the company’s revenue is low, so having them in detail is vital to avoid losing control.
Debt ratio
This indicator provides data so that the organization can visualize how much of its own resources and how much of third-party resources, such as loans and financing, it uses to carry out its activities. With this number in hand, the company can visualize its real financial situation and avoid debt.
Profitability
By dividing the net profit and the business’s monthly gross revenue, the company can identify its profitability, that is, whether it generates cash flow, satisfactory results and is capable of sustaining itself.
Average Ticket
Average Ticket: The quantity that average ticket holds has its correlation with the average price of goods and services a company sells. From here, the company analyzes the salesperson’s operations, which products are selling well, whether a new sales strategy is needed, etc.
Return on Investment (ROI)
Using the factor of ROI, the business determines whether their monetary resources are used properly-that is, this indicator reveals to which investments the business owes its income or loss and the best ways of using financial resources.
Cash Turnover
Cash turnover is an indicator of how many times a company’s cash is turned over per year. With this parameter, the company is able to determine how long it will take for its costs to become sales or cash.
Tips to boost your finances
Regardless of the size and industry, it is essential to apply corporate finance to any business and thus ensure survival in the market. Learn some tips to boost your company’s finances:
Planning
When carrying out financial planning , the organization determines the profitability of each asset, whether they are generating profit and how much the company still needs to grow. This makes it possible to outline effective strategies to achieve the desired growth and profitability.
Control
Monitoring finances is an excellent way for an organization to evaluate its performance. With this monitoring, it is possible to implement corrections and strategies to leverage the business if necessary, know the real situation of cash flow and whether more investments are needed.
Asset management
When applying the study of corporate finance to the business, asset management ensures better decision-making, as it presents the risks and returns of the company’s assets (that which has some value), whether there are any discrepancies in the accounts, what level of current assets it wants to reach, which assets need to be acquired and which need to be set aside, when an investment needs to be made, what expenses are necessary, among other issues.
Liability management
With liability management, the organization raises (reliable) financing resources for current and non-current assets for its activities, thus maximizing its liquidity, reducing costs and risks, visualizing which operations need more capital, etc.
Employee profile for working with corporate finance
The professional who deals directly with corporate finances is very important for the effective functioning of the company and because of this, some characteristics are essential in their profile. Find out more:
Market
The first crucial point is that the professional has in-depth knowledge of finance, accounting, economics, their market, current practices in the area, etc.
Leadership
Nowadays, having leadership skills is basically a prerequisite for any employee, and it is no different for a finance professional. They must be able to engage the team they work with, be an example for other employees, be proactive, encourage new ideas, have emotional control and work towards achieving excellent results.
Communication
The person who deals with finances must have excellent communication skills, which means they must have good public speaking skills, express their ideas in a cohesive manner, seek solutions together with the team they work with, allow everyone to cooperate with the work, know how to negotiate coherently, etc.
Analyst Profile
A professional with an analyst profile is someone who can perform various activities without major difficulties, and is comfortable working with numbers, metrics, data and graphs, essential characteristics for someone who deals with finances.
Change
Due to the numerous changes that occur in an organization’s finances, the person working in this area must be open to these possible variations.
Business
It is essential to understand how the organization’s financial processes work, as well as its revenues, fixed and variable costs, turnover, cash, etc.
Results
Everything in corporate finance revolves around results, so professionals in this area must focus their work on achieving the best financial results for the company.