Enterprise financial glossary

Service Business

When running your own business, everyone should know the basic concepts of enterprise finance. Company management is not only the coordination of the company's core activities, such as the sale of goods, provision of services or production. The proper operation of your own business also depends on the knowledge of the principles of financial management, i.e. planning skills and proper management of funds belonging to the company's assets.

Enterprise assets and sources of its financing

The obvious fact is that an enterprise cannot function without having adequate assets. The property of each company, as a rule, consists of assets - general assets - and liabilities, i.e. sources of their financing - equity or external capital.

We divide business assets into:

  • non-current assets (or fixed assets) - that is, assets that will be used in business for more than one year. They mainly include:

    • fixed assets,

    • intangible assets,

    • long term investments,

    • Long-term receivables;

  • current assets - i.e. assets used in the enterprise for a period of less than one year for purposes, e.g. basic activity, including:

    • wrestling,

    • cash,

    • receivables from suppliers,

    • accruals,

    • short-term investments.

Liabilities, on the other hand, are sources of financing the company's assets - in other words, capital, which is divided into:

  • equity - that is, funds earned in the course of business activity and owned by the enterprise. This category also includes valuable contributions made by company owners,

  • foreign capitals - all sources of financing the possessed property, which mainly include short-term and long-term credits and loans as well as trade liabilities.

A summary of the assets owned and the sources of its financing is drawn up - usually at the end of the tax year - the balance sheet, i.e. the financial statement presenting the financial situation of the enterprise.

finance company

Now that you know the basics of the assets necessary for the functioning of each enterprise and the sources of their financing, you should start familiarizing yourself with the basic concepts of financial management.

The company's finances are a set of processes taking place during the conduct of basic activity and activities aimed at the proper functioning of the company. They consist in trading in funds belonging to the company's resources - accumulating and disposing of them. However, the finances of any economic activity should be included in the financial system operating within the organization.

The financial system is a set of norms and rules for the functioning of an organization in terms of cash turnover, created on the basis of legal regulations. It mainly includes activities related to the preparation of monetary operations, as well as their planning, analysis and implementation for specific business purposes. The tasks of the company's financial system also include methods of settlements with contractors (suppliers, recipients), financial institutions, state authorities, etc.

Importantly, however, the enterprise will not function properly without proper supervision. Therefore, an important part of the organization is skilful financial management. As a rule, management is a decision-making process consisting in planning activities necessary to achieve the company's goals. With regard to the finances of any company, management is a process related to the effective use and acquisition of cash and other financial instruments using appropriate techniques, methods and possibilities.

The main assumption regarding the financial management of the enterprise is the acquisition and disposal of financial resources belonging to the organization's assets in such a way as to ensure their most effective management - producing positive results in the planned future.

Internal areas of the company's activity

The activity of each enterprise is mainly focused on making profits. However, in order for profits to be possible, it is necessary to take actions leading to the occurrence of processes supporting the functioning of the organization. In other words, the economic activity does not only include activities related to the sale of goods or the provision of services, but also other support activities that make the company an efficient mechanism.

Economic activity can therefore be divided into three main categories:

  1. operational - the main activity of the enterprise, including production processes, trade and the provision of services, which are aimed at obtaining revenues from sales generating financial streams flowing to the property. By comparing the revenues and costs in the operational field, it is possible to obtain information about the effectiveness of the company's core activity, i.e. to determine profitability;

  2. other operating activities - that is, all other processes performed as part of the activity not belonging to the category of basic activity. It includes revenues and costs indirectly related to operating activities, e.g. profit on the sale of tangible fixed assets or subsidies received;

  3. investment - activities aimed at undertaking activities aimed at the development of the enterprise and improvement of its effectiveness. It is mainly focused on the processes of increasing the business assets and improving the quality standards presented by the company;

  4. financial - processes aimed at acquiring the most advantageous sources of financing the company and settling existing liabilities.