Understanding Finance: Objectives, Scope, and Impact
Concept of Finance
Administrative science that studies the movement of cash. Finance is the planning of financial resources for implementation in the most optimal way. It also encompasses research on financing sources for acquiring resources for enterprises. Finance seeks to reduce investment uncertainty, all with the aim of obtaining higher earnings per share or profitability for a company.
Objectives of the Finance Function
- Planning business growth, advancing tactical and strategic requirements.
- Raising the funds necessary for the proper conduct of the business.
- Allocating these resources according to plans and projects.
- Promoting the optimal use of resources.
- Reducing the risk or uncertainty of the investment to a minimum.
Why Finance Matters
Maximizing Value
Finance aims to maximize the value of a company’s shares, maximize market share, and address the company’s short-term and medium-term needs. Ultimately, it’s about maximizing capital.
- Making strategic plans for the short term.
- Making strategic plans for the long term.
Company Goals
- Survival and growth of the business.
- Obtaining profits.
- Image and prestige.
- Social acceptance.
- Satisfaction of collective needs.
- Main objective: To obtain profits generated by business management.
Location of Finance in the Company
Financial management covers all activities of the company. Therefore, it’s crucial to analyze the management of finance within an organization.
- In a medium-sized firm with economic capacity, the finance department is at the department head level.
- In a company of great economic strength, finance is at the management level. The area can be structured as follows:
- Finance Director
- Chief Financial Officer
- Vice President of Finance
Microeconomic and Macroeconomic Variables
Microeconomics
These are internal factors that directly affect the business (commercial, industrial, or service-based) and should be considered by the financial manager or director of finance (in the case of a large company). Studying these factors will lead to a better understanding of the company, its evolution, and enable more informed decision-making. Examples include:
- Production strategies
- Pricing strategies
- Sales policy
- Credit policy
- Export regulations
- Wages and salaries
- Social security
- Funding strategies
- Growth policies
Macroeconomics
This area deals with the institutional structure of the banking system, financial intermediaries, the national treasury, and the economic policies available to the government to manage and control the level of economic activity within the economy. Examples include:
- Consumption
- Investment
- Inflation
- Uptake
- Unemployment
- Interest rate
- Oil
- Services
- Exchange rate
- Gross Domestic Product
- International indicators
Conclusion: The Importance of Financial Management
The finance function involves studying an organization’s financial statements through various methods (Vertical Percentage Method, Method of Increasing or Decreasing, Horizontal Analysis, DuPont Analysis, Financial Leverage Method, and Factorial Method, which involve financial ratios).
Through these methods and analyses, we can measure the financial management of the board or president of the organization, determining if they are effectively managing and maximizing the investments (assets) entrusted to them.
This highlights the importance of operational, financial, and investment decision-making that constitutes the financial focus of the organization in the short, medium, and long term. It also emphasizes the need for appropriate corrective action from the organization’s top management.
Central Bank of Venezuela: Key Articles
Article 1. The Central Bank of Venezuela is a legal entity under public law, constitutional, unique in nature, with full public and private capacity, and a member of the National Government.
Article 3. The assets of the Central Bank of Venezuela consist of the initial capital, the General Reserve Fund, retained earnings, and other equity accounts. The assets of the Central Bank of Venezuela are inalienable.
Article 5. The fundamental objective of the Central Bank of Venezuela is to achieve price stability and preserve the value of its currency. The Central Bank contributes to the harmonious development of the national economy, taking into account the socio-economic foundations of the Republic’s regime.
Article 7. To fulfill its purpose, the Central Bank of Venezuela is responsible for the following functions:
- Formulate and implement monetary policy.
- Participate in designing and implementing foreign exchange policy.
- Regulate credit and interest rates of the financial system.
- Regulate currency and promote adequate liquidity in the financial system.
- Centralize and manage the international monetary reserves of the Republic.
- Participate in the foreign exchange market and exercise supervision and control thereof on the terms to be agreed upon by the Executive Branch.
- Ensure the proper functioning of the country’s payment system and establish its rules of operation.
- Exercise, exclusively, the power to issue currency.
- Advise the national authorities within its competence.
- Exercise the rights and assume the obligations of the Republic in the International Monetary Fund, as provided in the relevant agreements and the law.
- Participate regularly and carry out operations in the gold market.
- Compile and publish the main economic, monetary, financial, exchange, price, and balance of payments data.
- Perform other operations and services of the central bank, according to the law.