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Financial Management Notes

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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
 Monitoring and review to ensure that the mission is on target and that performance indicators are being met
o

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