Short-term and long-term financial policy: analytical comparison and identification of major differences

The financial policy is represented by a specific (financial) ideology, aimed at achieving the main goal of the enterprise's economic activity - making a profit. Short-term and long-term financial policy are structural elements of the general financial policy of the business entity. At the same time they are responsible for various areas of the enterprise.

Long-term financial policy inherently covers the entire life cycle, with a full description of its phases of growth, decline, maturity and the withdrawal of capital to the most needed places. The long-term cycle is divided into a large number of short-term periods, the duration of which is equal to one financial year. For each individual year, the company's short-term financial policy is formed.

These two types of policies have their own, different from each other areas of application. Long-term financial policy focuses on the investment activity of the enterprise (long-term financial and capital investments), while the short-term main emphasis is on the current activity of the business entity.

There are differences between these two components of financial policy when linking with strategic directions in the market. Short-term financial policy contributes to solving the problems of resolving offers of services and goods within a year, long-term financial policy should ensure the company's place in the market, based on changes in the quality, quantity, assortment of the same services and goods.

Working capital management in the long run is reduced to solving the main two problems:

- determination of the optimality in the structure and size of the current assets of liabilities;

- Providing at the expense of various forms of funds to cover the financial needs of working capital.

Long-term financial policy in comparison with the short-term has and various management objects. Financial policy in the short run manages working capital, and long-term policy is the main one, which can be represented by a combination of circulating and non-current capital.

From the standpoint of effectiveness criteria, these two concepts compete with each other. Short-term financial policy considers the achievement of the maximum level of profit as an assessment of effectiveness, and long-term - the maximum benefit from investment.

These criteria give rise to differences between short-term and long-term financial policies in determining strategic objectives. So, in the implementation of the latter, the main strategy is considered to be achievement of productivity, increase in capacity and fixed assets, and also capital is viewed not in financial terms, but in physical form, which can be measured as production capacity.

The short-term policy in the sphere of finance is responsible for the fulfillment of production tasks within the available capacities while ensuring flexible financing, formation and accumulation of own financial sources and working capital and non-current capital.

Along with the differences in these two financial policies, there is a connection between them. Short-term can be considered a "built-in" part of long-term financial policy. After all, the direction of expansion of production activities, the release of free funds for further investment in the production process, which are the main factor of long-term planning, are formed in the process of the current activity of the business entity.