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What Is Financial Activity?

2011/1/8 13:12:00 41

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A general term for the collection, use and profit distribution of funds in the course of production and operation of enterprises.

Including capital raising, capital use and

Profit

Three basic links such as distribution.

Financial activities are closely related to other aspects of production and business activities.

One side,

Finance

Activity is the premise and guarantee for other aspects of production and operation activities. It is mainly manifested in the fact that only by raising a certain amount of operating capital can other aspects of production and operation be carried out. Only when capital turnover is smooth can production and business activities be smooth.

On the other hand, financial activities are the concentrated expression of other aspects of production and operation activities. It is manifested that only when the specifications, varieties and quality of the products are guaranteed, and the marketing efforts are effective, can the funds be recovered and smoothly turned around in time. Only by organizing the production and operation, strict management and clear responsibilities, can the cost be reduced and the profit target can be realized.

The basic link of financial activities

Fund raising

One of the basic links of financial activities.

Obtaining certain economic resources is a prerequisite for production and business activities.

Under the condition of market economy, economic resources are first manifested as a certain amount of capital that is compatible with the scale of production and operation and the structure of technology.

Therefore, at the beginning of the establishment of an enterprise, investors should invest a certain amount of capital in accordance with the provisions of relevant laws.

After the enterprise is put into operation, it will further raise the necessary funds according to the production and operation needs.

Generally speaking, the funds raised by enterprises include two types of capital invested by the owners and borrowed funds. The former is usually referred to as owner's equity, and the latter is usually referred to as liabilities.

Owners' rights and interests mainly include two items: first, paid in capital, which refers to capital invested by an enterprise owner in accordance with the law, or capital added after its establishment, is called capital stock in a company's enterprise, and the two is retained earnings.

Refers to an enterprise that is used for replenishment of production and operation funds and collective welfare facilities for employees in accordance with legal provisions or internal distribution policies.

reserve

Or for later annual distribution, etc., leaving the after tax profits part of the enterprise.

In addition, capital generated by asset revaluation and capital premium is also a part of the owner's equity.

Liabilities mainly include bank loans, bond issuance, business credit and so on.

Fund use

One of the basic links of financial activities.

After obtaining funds through various channels, enterprises will invest funds according to the actual needs of production and operation.

Mainly include the following uses: one is to buy and build houses, buildings, machinery and equipment, and other fixed assets; two is for the development or purchase of patent, land use rights and other intangible assets; three for foreign direct investment, such as the establishment of a subsidiary or joint company, the purchase of stocks, and so on; four for the purchase of raw materials, payment of wages, payment of management fees, insurance fees and other types of costs.

Profit distribution

One of the basic links of financial activities.

After the income tax is paid, the profits gained by enterprises in the course of production and operation shall be allocated according to the law and the income distribution policy of enterprises.

After tax profits are usually allocated according to the following order: first, to make up for the previous losses of enterprises; the two is to extract surplus reserves; the three is to extract public welfare funds to pay for the welfare facilities of employees; four, to allocate profits to investors.