A company is a set of capital, work and techniques that combine to carry out an economic activity for profit. Understanding this concept, it will be possible to observe that a company has as objective the profit of the investment that was made for the execution of said activity and that the owners or investors are waiting for the profit that they obtain from this activity to increase their wealth.
The execution of the economic activity or the company's corporate purpose is carried out with the intervention of four main areas:
- Production: which is in charge of preparing products (goods or services) with efficiency, effectiveness and productivity. Its objective is aimed at customer satisfaction.Human Resources: which is in charge of offering adequate compensation to workers for their contribution to the process, not only in money but also in well-being, thus targeting employees. that corresponds to place the product on the market, ensuring customer satisfaction. Financial: which is the area that is responsible for ensuring the profit of the company supporting social responsibility to other departments. From this it follows that the basic financial objective is to maximize the wealth of the owners or, what is the same, the value of the company.
But how much is a company worth? It is generally thought to be equivalent to the value of its assets, but in reality the value of the company depends on several factors:
1. Financial Factor: as previously stated, the company seeks a constant profit with an initial investment, that profit that can be called free cash flow, is the income generated by the operation after replacing working capital and which is intended to serve the service of the debt and to distribute profits between the partners. Working capital are the resources that the company needs for its correct operation and mathematically it is expressed as the relationship between accounts receivable, plus inventories less accounts payable to suppliers. It is obviously directly related to sales and therefore when planning an increase in sales an increase in net working capital must necessarily be planned, which must come out of the cash flow.
Este flujo de caja libre combinado con el costo del dinero en un momento dado, determinará el valor de la empresa, ya que los inversionistas querrán seguir obteniendo dicho monto llevando un capital dado a otra inversión con una tasa esperada. Esta tasa, llamada tasa de interés no es estable y depende de muchos factores económicos nacionales e internacionales que están fuera del alcance de la empresa, por lo tanto, aunque se puede calcular un valor financiero de una empresa, este valor puede verse afectado enormemente de un día para otro. Por ejemplo, una empresa que tiene un flujo de caja libre de $1.000 y la tasa de interés está en 1% mensual tiene un valor de = $100.000. Este valor es independiente del costo de los activos que posea, porque es en realidad el resultado de una operación con dichos activos y no los activos en sí. Si las circunstancias económicas cambian y la tasa de interés sube, por ejemplo a 2%, afectaría inmediatamente el valor de la empresa, así: $1000/0.02 = $50.000 contra $100.000 que costaba anteriormente.
Therefore, in order to meet the financial objective of maximizing the value of the company, generating greater free cash flow with good management of the other areas of the company (free cash flow is the first indicator of compliance with this objective).), this value will depend on how the country's economy fluctuates.
2. Risk: This depends on the economic activity of the company, since it is expected to obtain greater benefit from a business that involves greater risk and this will lead to defining the amount that the investor is willing to pay for a company.
3. The future: The perspective that the company has on its future will also influence its value, since what is expected is that the free cash flow obtained today will have considerable growth, which will make it even more attractive investment and increase the value of the company.
4. Sociocultural, Environmental and Technological Aspects: this is the environment, which affects all companies making demands for investment in diversification, changes in technology, changes in processes that currently affect the environment, etc., since all of this can modify the profitability and stability of the company at any time.
In order to ensure compliance with the basic financial objective, that is, to maximize the value of the company, it is necessary to know the impact they have on it, the financial decisions that may be:
1. Investment: They are those directly related to the volume of assets that the company will manage. Among the assets, the volume of fixed assets, the volume of accounts receivable, the amount of inventories that depend on the volume of sales and the growth of the operation can be considered. These decisions directly affect the profitability of the company and here the relationship with the risk of the investment is observed, since when it owns more assets (for example, inventories) it runs less risk but its profitability decreases and vice versa.
Different areas of the company participate in these decisions, but it is extremely important that they always rely on the financial department, since, as illustrated, any decision of this type can greatly affect profitability.
2. Financing: These decisions establish the financial structure that the owners want to give to the company, defining the level of indebtedness or financial risk that the owners decide to contract and on this depends: the profit before taxes, since the greater the indebtedness the greater It will be the financial expenses that directly affect it, and the cost of capital. The cost of capital is the value of each of the different sources of financing (liabilities and equity) with which the assets of the company are acquired. This cost is expected to be paid for the activity of the company and this cost is reflected in the operating profit. The cost of capital is the minimum profitability expected to be obtained from the business and when this profitability is higher,Value is being generated to the company and therefore the financing decisions will have allowed the financial objective to be met.
3. Dividend: Dividend distribution decisions also affect the value of the company, because this decision must be made after evaluating the income statement, the statement of cash flow and application, and the cash flow, since the delivery of dividends can greatly affect liquidity and lead to the decapitalization of the company.
With all of the above, it is concluded that the value of the companies depends on the cash flow that it generates as a going concern and on various internal and external circumstances, and that therefore, the financial area, as the main responsible for the maximization of This value should be the right hand of management to evaluate in light of this objective all the decisions that are thought to be made and to provide the necessary information regarding the state of the company at any time, with the main financial statements and indices that They are supported by: Balance Sheet, Income Statement, Statement of Retained Earnings, Statement of Flow and Application of Funds, and Statement of Cash Flow, liquidity ratios, profitability, indebtedness and activity
