Financial Management Notes

Topics: Balance sheet, Generally Accepted Accounting Principles, Debt Pages: 6 (1499 words) Published: March 10, 2005
-Financial management is one of the functions of management -Financial management is concerned with
oProfits and losses of operations
oControl over funds
oEnsuring appropriate cash flow is available
oChas management
oRaising funds / controlling internal funds
oInvestment of funds
oCost control / pricing
oForecasting / 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

oLiquidity 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 oSolvency Refers to a business ability to pay its debts when due, and remain a going concern oProfitability Refers to how profitable the business is from the perspectives of profit on sales, assets and shareholders equity oEfficiency Examines how well working capital is managed, that is how quickly cash is collected from debtors, inventory sold and creditors paid. oGrowth 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

oStrategic or corporate plans involve how the business can accomplish its objectives, generally to create a strong competitive advantage oOrganisational 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 oTactical plans focus on the most efficient resource use by a business unit or department oOperational plans are concerned with implementing the strategic plan through day to day processes, procedures, workflow and efficiency oFinancial plans represent the dollar quantification of the strategic and operating plans oAnd business plan should be the result of an integrated approach that encompasses all three oThe planning cycle involves developing strategies, implementing them, monitoring the progress made, evaluating the success of them, and modifying where necessary oOne approach that can be taken is

Determine the financial elements of the business plan Maintain the record systems
Develop budgets
Consider the cash flows
Interpret the financial reports
Address the present financial position
Plan financial controls
Minimise financial risks and losses
Owners equity – where owners of any kind contribute to new capital Retained profits – the business may self-capitalise through retained profits from previous years, the funds are not invested in the owners, but back into the business Sale of assets

Changing the ownership of structure
Short term borrowing
•Overdrafts – are arrangements between then business and its bank in which the business may borrow through its cheque account up to a certain amount. Overdrafts may be secured or unsecured. They are a very flexible form of short term finance because the funds are there when the business needs them and interest is only charged on the outstanding daily balance •Bank Bills – are bill of exchange where the acceptor and/or endorser is the bank. They are usually drawn for periods of 30, 90 or 180 days and normally a face value of $100,000 or $500,000. they are usually traded in parcels of $10mil. Long term...
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