Topic 3.

Financial management

PLAN

1. The essence and methods of financial management

2. The system of public financial management bodies and their responsibilities

3. Financial planning

4. Financial forecasting

LITERATURE

1. N.Novruzov, H.Huseynov - Finance, Baku - 2007

2. MM Sadigov, SM Mammadov - Finance, Ganja - 2010

3. MM Sadigov, MC Huseynov, HH Hasanov - Finance of agriculture, Ganja - 2011

4. B.Atashov, N.Novruzov, E.Ibrahimov. Financial theory, Baku 2014.

5. Dr. Arman T. Tevik, Ş gürman tevfik, Fundamentals of Institutional Finance, Beta Basim broadcast,
2018

. 1. The essence of financial management and

methods

Management is a conscious, purposeful influence on an object with the help of a combination of

methods and techniques to achieve certain results.

An important area of management activity is financial management. It is carried out with the help of
special apparatus, special methods, as well as various stimuli and sanctions.

As in other management systems, there are objects and subjects of management in financial
management. The object of management is the financial relations related to the formation of cash
income and savings and their use by economic entities and the state. The subject of management is the
organizational structure that carries out management.

According to the classification of financial relations, the object of management is divided into different
groups according to their area, such as finance of organizations (enterprises, departments), insurance
relations, public finance, municipal finance, household finance. They correspond to the subjects of
management, such as financial services (departments), insurance agencies, financial authorities and tax
authorities of enterprises. The financial apparatus is a set of organizational structures that manage
finance.

Management entities use specific methods of purposeful influence on finance in each area and in each
loop of financial relations. At the same time, they have a unified method and methods of management.
Important functional elements such as planning and forecasting, strategic and operational management,
financial control can be distinguished in financial management.

The following functional elements should be distinguished in public finance management:

1) Financial planning and forecasting;

2) Strategic and operational management (forms of management);

3) Financial control.

Planning plays an important role in the financial management system. During the planning process, any
economic entity thoroughly assesses the financial situation, identifies opportunities to increase financial
resources, and identifies areas for their more efficient use. Plan decisions are made based on the
analysis of financial information based on accounting, statistical and operational reports.

Operational management refers to a set of measures developed on the basis of an operational analysis
of the current financial situation and aims to achieve greater efficiency at a lower cost through the
redistribution of financial resources. The main content of operational management is the efficient use
of financial resources to improve economic activity.

There are strategic (general) and operational forms of financial management. Strategic management is
involved in determining perspective financial resources through forecasting, determining the amount of
financial resources for the implementation of the target program, etc. is used. It is represented by state
and economic bodies: the Milli Majlis of the Republic of Azerbaijan, the Presidential Administration, the
Ministry of Finance, the Ministry of Economic Development and others. carried out by. Operational
management includes the functions of the financial system apparatus: the Ministry of Finance, financial
bodies of the AR subjects, local authorities, heads of extra-budgetary funds, insurance organizations,
financial services (departments) of enterprises.

Financial control is exercised in the planning and operational management process. It allows you to
compare the actual results of the use of financial resources with the planned indicators, to identify
resources for increasing financial resources and their more efficient use.

.2. The system of public administration bodies of finance and their responsibilities
In accordance with the Constitution of the Republic of Azerbaijan, the general (strategic) management
of finance in the Republic of Azerbaijan is entrusted to the Milli Majlis, the Presidential Administration
and the Government of the Republic of Azerbaijan.

Operational financial management is carried out by the financial apparatus. With its help, the state
manages the financial activities of all structural units of the economy. The financial apparatus carries
out operational financial planning, accounting, analysis, control and implementation of financial plans.

Financial activities in enterprises and sectors of the national economy are carried out by the financial
departments and services of the enterprise, as well as the financial departments of ministries and
departments. Insurance relations are managed by special insurance structures. Public finance
management is carried out by the Ministry of Finance, the Ministry of Taxes, the Customs Committee,
the Central Bank and their local bodies.

The Milli Majlis considers and approves the report on the state budget of the Republic of Azerbaijan and
its implementation. The Milli Majlis also reviews laws on taxes, duties and mandatory payments. In
addition, it determines the limits of domestic and foreign debt of the state.

The participation of the President of the Republic of Azerbaijan in financial management is connected
with the definition of goals and objectives of financial policy, signing of laws on financial issues,
submission of draft financial legislation, issuance of orders and implementation of state financial control.

Executive authorities are responsible for the development and implementation of the country's
financial policy, preparation and implementation of the state budget on behalf of the Cabinet of
Ministers of the Republic of Azerbaijan, develop laws on finance and other related issues, approve
decisions, issue orders ensuring the implementation of financial legislation. .

The most important body for financial management is the Ministry of Finance of the Republic of
Azerbaijan and their local bodies.

At present, there are 5 public services and local branches within the Ministry of Finance of the Republic
of Azerbaijan.
The main task of the Ministry of Finance is to implement a unified financial (budget, tax, insurance,
public debt and currency), monetary policy, as well as customs, accounting, investment policy,
production, processing and turnover of precious metals.

In accordance with the above responsibilities, the main functions of the Ministry of Finance of the
Republic of Azerbaijan are as follows:

• develops and ensures the implementation of state policy in the field of finance, budget, taxation;

• ensures the preparation of draft state and consolidated budgets in accordance with existing
legislation;

• ensures the execution of the state budget, organizes the implementation of state financial control
over the expenditure of funds allocated from the state budget and loans obtained under the state
guarantee;

• ensures the implementation of state policy in the field of insurance activities and state control over
the activities of professional participants in the insurance market;

• organizes and ensures the implementation of state calibration control in the country and state control
in the field of production, processing and circulation of precious metals and precious stones;

• develops and takes measures for the implementation of state policy in the field of organization and
maintenance of accounting, as well as preparation and submission of financial statements;

• Participates in the formulation of public investment programs, development and implementation of

public investment policy, development concepts and strategies of public programs;

• repairs the implementation of necessary measures in the field of development of the financial market
in the country, attraction of foreign and domestic loans to the economy;

• implements normative-legal regulations in the field of budget system, taxation, state treasury, state
financial control, control over insurance activity, public debt management, control over precious metals,
audit, organization and maintenance of accounting;

• Coordinates the activities of sectoral central and local executive authorities in the areas of activity of
the ministry.

• Organizes the current state of the economy in the country and makes proposals for solving socio-
economic problems.

According to the mentioned financial directions, the following can be distinguished among the main
responsibilities of the Ministry of Finance of the Republic of Azerbaijan:

• to prepare and submit draft state budget and consolidated budget for the next budget year and
indicators of the consolidated budget for the next year, to make proposals on improving the process of
preparation and execution of the state budget, to regulate relations with the state budget and other
budgets;
• prepare and submit proposals on the amount and rates of state duties, taxes and other mandatory
payments, as well as ensure the preparation of forms of accounting and reporting documents;

• coordinate budget and monetary policy;

• To ensure the management of the public debt and government securities of the Republic of
Azerbaijan;

• maintenance of the register of public debts and state guarantees, registration of issues of government
securities of the subjects of the Republic of Azerbaijan and municipalities;

• to ensure the development of regulations in the field of accounting and financial reporting.

The Ministry of Taxes of the Republic of Azerbaijan plays an important role in financial management.
Correct calculation of all obligatory payments, control over full and timely payment to the budget to the
Ministry of Taxes of the Republic of Azerbaijan and its local bodies - the Ministry of Taxes of Nakhchivan
AR to the Tax Department of Baku city. It has been entrusted to the territorial tax offices.

The State Customs Committee of the Republic of Azerbaijan is responsible for the receipt of customs
duties. Its responsibilities are:

- to carry out inspections on taxes collected by the customs authorities;

- to check all documents related to the calculation and payment of taxes collected by the tax
authorities;

- to suspend operations on a bank account in case of non-compliance or insufficient compliance of

taxpayers with the tax legislation;

- to deduct tax deficits, as well as penalties provided for in the tax legislation.

In general, the customs authorities control the observance of tax legislation, the correct calculation and
payment of customs duties when moving goods across the borders of the Republic of Azerbaijan.

The Central Bank of the Republic of Azerbaijan, being a specially authorized public administration body
carrying out financial activities, determines and implements the state policy in the field of monetary and
currency; organizes cash turnover; carries out the issuance and withdrawal of banknotes from
circulation; regularly determines and announces the official exchange rate of manat against foreign
currencies; carries out currency regulation and control; maintains the international gold and foreign
exchange reserves at its disposal and participates in the preparation of the country's forecast balance of
payments; licenses and regulates banking activities, exercises control over banking activities; organizes
the operation of payment systems.

In commercial organizations, financial management is carried out by the supreme governing body (for
joint-stock companies, this is a general meeting of shareholders), which also determines the financial
strategy of the organization, approves financial plans and reports on their implementation.

The organization of financial management bodies in non-profit organizations, depending on their

organizational and legal forms and types of activities, decisions on financial issues are made by a
specially established Council and Audit Commission, etc. accepts.
Financial plans of budget departments are developed and implemented in accordance with the budget
estimate, and revenue-generating activities in accordance with the general requirements set by the
Ministry of Finance of the Republic of Azerbaijan in accordance with the instructions of the Chief Budget
Officer.

Local self-government is managed by municipalities. Municipalities decide on the approval of local

budgets and reports on their implementation, determine local taxes and fees.

. 3 .Financial planning

Financial planning is an important element of financial management. The object of financial planning is
the financial activity of the state (municipality) and economic entities. The result is the preparation of
financial plans (from the estimates of individual departments to the consolidated financial balance of
the state). Each plan defines the relationship between income and expenses for a certain period,
payments and settlements with all links of the financial and credit system.

All links in the financial system have a financial plan. The forms of the financial plan, the composition of
its indicators reflect the specificity of the relevant link in the financial system. Thus, the balance of
income and expenses of enterprises operating on a commercial basis; Estimates of departments
carrying out non-commercial activities; Cooperatives, public associations and insurance companies
prepare financial plans, and public authorities prepare budgets.

Financial planning is based on the requirements of fiscal policy implemented at one stage or another of
economic development. In this case, the amount of funds and their sources for the implementation of
planned tasks are determined, the increase in revenues and savings are identified, the optimal ratios of
the distribution of funds between centralized and decentralized funds are determined.

Financial planning is carried out through quantitative and qualitative methods.

Quantitative methods have analytical, static and graphical directions. The analytical method uses such
types of normative factors as direct, proportional dependence and optimization.

According to the quality, expert assessment, normative and similarity methods are distinguished.

Financial planning involves not only the quantitative and qualitative parameters of the formation and
use of financial resources and revenues of economic entities, including public authorities, but also the
degree of adequacy of revenues to the proposed expenditures, the lack of special funds and the amount
of external financial resources.

The balance method is applied to coordinate the directions of their use together with the sources of
formation of financial resources, to coordinate all sections of the financial plan.

When planning in the field of material production, along with the broad form, the balance of income
and expenses - the abbreviated form (for small and medium enterprises) also draws up a financial plan.
 The purpose of the financial plan is to determine the possible amount of funds, capital and reserves on
the basis of short-term, medium-term and long-term forecasting of financial indicators. The main
strategy of the financial plan is to determine the sources of profit and the direction of expenditures in
economic entities.

Depending on the purpose, financial plans of enterprises are usually prepared for 5 years, 1 year and
quarterly. However, in some cases, long-term strategic financial plans are also developed. Accordingly,
there are long-term, annual, current and operational plans.

Previous period financial statements are used in the development of the financial plan. This is
necessary to analyze the financial condition of the company. This is because such an analysis allows one
to wish for undesirable deviations and to take into account the results of analytical generalizations in the
plan.

Another important feature that distinguishes modern financial planning practice is the similarity of
annual plans and operational indicators. Or rather, annual plans are divided into shorter-term plans
over time.

When developing a plan, it is necessary to determine the exact direction of activities, economic,
investment and financial directions. This increases the efficiency of cash flow management. It is also
necessary to determine the planning interval in advance, depending on the specific economic conditions
(quarterly, annual or more).

The sequential stages of financial planning can be described as follows:

1. research of financial results of activity of planning object;

2. Development of forecast options for financial statements based on changes in operational plans;

3. Determining the specific demand for financial resources of the planned facility;

4. forecasting the structure and sources of funding;

5. Establishment and protection of financial management system;

6. Defining procedures for operative change of developed plans.

The principles of financial planning include:

■ balancing;

■ ensuring proportionality;

■ Accounting for the characteristics of the individual links of the financial system, forms and methods of
cash funds.

The main tasks of financial planning include:

 determination of the amount of financial resources (income) for each source of income and the total
amount of financial resources of public authorities and economic entities;
 development of the volume, directions of use of financial resources (income), as well as priorities of
use of funds;

 Ensuring the balance of material and financial resources, economical and efficient use of financial
resources (income);

 Strengthening the stability of budgets and extra-budgetary state funds at all levels, as well as creating
conditions to ensure the financial stability of organizations and individual entrepreneurs;

 Determining the economically justified amount of financial resources to avoid disproportion during
the transition from perspective planning to current planning, forecast to plan, and to warn and reduce
financial risks.

Types of financial plans and their characteristics.

Financial planning is the process of preparing and implementing financial plans.

Financial plans are documents that contain a system of interrelated financial indicators and reflect the
volume of access and use of financial resources for the planned period.

The types of financial plans are as follows:

• budget forecasting;

• estimates of revenues and expenditures of extra-budgetary funds;

• balance of financial resources;

• Balance of income and expenditure of the population.

The system of financial plans consists of initial (first) plans and secondary (second) plans. Initial plans
include financial plans of enterprises and organizations and estimates of government agencies. The
second plans are developed at the sectoral, territorial and national levels.

The consolidated financial plans consist of national, territorial and sectoral plans.

National plans, in turn, consist of the consolidated financial balance of the state and the state budget.

Territorial plans cover the consolidated financial balance of the regions, local budgets, and plans of
nationwide organizations in the relevant areas.

Sectoral plans may include the balance of income and expenditure of material production areas, the
balance of revenues and expenditures of the ministry (departments) and the estimates of budget
departments.

The main financial resources for the preparation of financial plans are the balance sheet and indicators
of the country's socio-economic development plan.

The consolidated financial balance of the Republic of Azerbaijan is a document reflecting the plan
parameters of the volume and directions of use of financial resources of the Republic of Azerbaijan and
economic sectors. This balance sheet is compiled for the purpose of forecasting the socio-economic
development of the country and assessing the financial resources of the state budget for the next and
planned period (two years), as well as assessing the impact of financial policy on the socio-economic
development of society.

4. . Financial forecasting

Financial forecasting consists of seeing the possible financial condition of any object for the near and
long term and substantiating the main indicators of the action plan.

The main factor for building a financial forecast is the statistical evaluation coefficient.

Unlike financial planning, the financial forecasts of public authorities and local self-government bodies
do not have the force of law, they provide the strategic purpose of socio-economic policy and have an
analytical, informational and evaluative character.

The purpose of financial forecasting is as follows:

■ harmonization of material and financial values at the macro and micro levels for the future;

■ Investigation of possible sources and volume of financial resources of economic and government
entities for the forecast period;

■ identification of directions for more efficient use of financial resources of economic and government
entities in the forecast period;

■ identifying and evaluating the financial consequences of decisions made by all levels of government
and businesses;

■ specification of the expected increase in the volume of financial resources in the forecast period;

■ Study of forecast documents to determine the additional financing necessary for the expected
increase in production in the future.

Financial forecasting refers to the activity of seeing and strategically evaluating the development of
finance, the volume, composition and structure of financial resources, the prospects for their use.
Financial forecasts determine the future state of finance and the need for financial resources. The
results of financial forecasts can be used to develop financial plans and play an independent role in the
development and implementation of financial policy concepts and strategies.

In the process of financial forecasting, financial forecasts are made, which can also be called a long-term
financial plan. Forecasts can be short-term (up to 3 years), medium-term (3 to 7 years), long-term (up to
15 years).

Financial planning (forecasting) refers to a three-stage process, which includes the analysis of the
implementation of the financial plan (forecast), the definition of plan (forecast) indicators, the formation
of the financial plan (forecast).

At the stage of analysis of the implementation of the financial plan (forecast), the degree of
implementation of the planned parameters in the past period is determined by comparing them with
the actual results.
 The stage of determining the plan (forecast) indicators is related to the calculation of the specific
quantity of these indicators, which characterizes the process of formation and use of financial resources
(revenues).

Finally, at the stage of formation of the financial plan (forecast), it is compiled on direct income and
expenses, and other indicators.

QUESTIONS

1) What is the essence of the object and subject of management?

)The object of management is the financial relations related to the formation of cash income and
savings and their use by economic entities and the state. The subject of management is the
organizational structure that carries out management.
2) What functional elements are used in public finance management?

The following functional elements should be distinguished in public finance management:

1) Financial planning and forecasting;

2) Strategic and operational management (are forms of management);
3) Financial control.

4)Strategic management is carried out by which bodies?

It is represented by state and economic bodies: the Milli Majlis of the Republic of Azerbaijan, the
Presidential Administration, the Ministry of Finance, the Ministry of Economic Development and
others. carried out by

5) What is the purpose of financial control?

Financial control is exercised in the planning and operational management process. It allows you to
compare the actual results of the use of financial resources with the planned indicators, to identify
resources for increasing financial resources and their more efficient use.

6) What bodies are entrusted with the general management of finance in the country?

General (strategic) financial management in the Republic of Azerbaijan is entrusted to the Milli Majlis,
the Presidential Administration and the Government of the Republic of Azerbaijan in accordance with
the Constitution of the Republic of Azerbaijan.

7) What is the role of the Milli Majlis in economic processes in the country?

General (strategic) financial management in the Republic of Azerbaijan is entrusted to the Milli Majlis,
the Presidential Administration and the Government of the Republic of Azerbaijan in accordance with
the Constitution of the Republic of Azerbaijan.

8) What is the most important body that manages finances?

The most important body for financial management is the Ministry of Finance of the Republic of
Azerbaijan and their local bodies.
9) What is the main task of the Ministry of Finance?

The main task of the Ministry of Finance is to implement the state's unified financial (budget, tax,
insurance, public debt and currency), monetary policy, as well as customs, accounting, investment
policy, production, processing and turnover of precious metals

10) Which body is responsible for operations related to customs duties?

The State Customs Committee of the Republic of Azerbaijan is responsible for the receipt of customs
duties.

11) Which body manages finances at the local level?

Local self-government is managed by municipalities. Municipalities decide on the approval of local

budgets and reports on their implementation, determine local taxes and fees.

12) What is the essence of the object of financial planning?

The object of financial planning is the financial activity of the state (municipality) and economic entities.
The result is the preparation of financial plans (from the estimates of individual departments to the
consolidated financial balance of the state). 14) What methods are used for financial planning and the
essence of the methods?

Financial planning is carried out through quantitative and qualitative methods. Quantitative methods
have analytical, static and graphical directions. The analytical method uses such types of normative
factors as direct, proportional dependence and optimization. According to the quality, expert evaluation,
normative and similarity methods are distinguished.

15) What are the principles of financial planning?

The principles of financial planning include:

■ balancing;

■ ensuring proportionality;

■ Accounting for the characteristics of the individual links of the financial system, the forms and
methods of cash funds.

TEST

1) How to classify the financial system?

a) Centralized and decentralized finance

b) Financing of economic entities

c) Public finance

c) Public finance
d) Finance of enterprises and organizations

1. 2) What policy requirements are taken into account in financial planning at this or that stage of
economic development?

a) Fiscal policy

b) Budget policy

c) Tax policy

d) Monetary policy

e) Fiscal policy

2. 3) What methods are used for financial planning?

a) Quantity and quality

b) Discount

c) Dialectical

d) Normalization

e) Efficiency

3. 4) What quantitative methods are used for financial planning?

a) Analytical, static, graphical

b) Extrapolation, static

c) extrapolation and normative

d) extrapolation and mathematical modeling

e) normative and mathematical modeling

4. 5) What quality methods are used for financial planning?

a) Expert assessment, normative and similarity

b) extrapolation and normative

c) Analytical, static, graphical

d) extrapolation and mathematical modeling

e) normative and mathematical modeling

5. 6) How are enterprises preparing a financial plan in terms of time, depending on the purpose?

a) Five-year, one-year and quarterly

b) Annual and quarterly

c) Five years and quarterly

d) Five years and one year

e) Perspective and operational

6. 7) What are financial plans a document?

a) Documents containing a system of interrelated financial indicators and reflecting the inflow and
outflow of financial resources for the planned period

b) It is the process of preparing financial plans

c) It is the process of implementing financial plans

d) Production costs

e) Turnover costs

7. 8) Depending on the purpose, what financial plans are prepared in enterprises?

a) perspective, annual, current and operational

b) perspective and annual

c) perspective and current

d) perspective and operational

e) current and operational

8. 9) How would you explain the essence of financial forecasting?

a) It consists of seeing the possible financial condition of any object for the near and long term and
substantiating the main indicators of the action plan

b) It is a legally binding document of state authorities and local self-government bodies

c) To see the possible financial condition of any object for the past period and to substantiate the main
indicators of the action plan

d) It is a document prepared on the basis of financial plans of any object

e) It is a document prepared to see the possible financial condition of any object in the near and long
term

9. 10) For how long are financial forecasts made?

a) Short-term, medium-term, long-term

b) Short-term, medium-term

c) Short-term, long-term
d) Medium-term, long-term

e) Short-term, medium-term, long-term, operational