Financial Management Notes

ROLE OF FINANCIAL MANAGEMENT

- Financial management is one of the functions of management

- Financial management is concerned with

o Profits and losses of operations

o Control over funds

o Ensuring appropriate cash flow is available

o Chas management

o Raising funds / controlling internal funds

o Investment of funds

o Cost control / pricing

o Forecasting / measuring financial performance against expectations

- Accounting is a subset of financial management. Financial transactions must be recorded, classified, stored and eventually reported to the managers.

- OBJECTIVES OF FINANCIAL MANAGEMENT

o Liquidity Refers to cash reserves being held, or to the ability to turn and investment into cash with little or no delay or loss of capital

o Solvency Refers to a business ability to pay its debts when due, and remain a going concern

o Profitability Refers to how profitable the business is from the perspectives of profit on sales, assets and shareholders equity

o Efficiency Examines how well working capital is managed, that is how quickly cash is collected from debtors, inventory sold and creditors paid.

o Growth Once a business is formed and operations commence, it enters a growth phase, where there should be an increase in the number of goods or services sold

- THE PLANNING CYCLE

o Strategic or corporate plans involve how the business can accomplish its objectives, generally to create a strong competitive advantage

o Organisational planning processes involve

 The formulation of mission, goals and objectives,

 An analysis of key environmental variables that present opportunities, threats, and constraints. It is known as an environmental audit

 An organisational audit to evaluate strengths and weaknesses and identify where change needs to be met

 The formulation of strategies within deadlines to achieve specific objectives